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Securities Law Aspects of Employee Benefit Plans (Portfolio 362)

Tax Management Portfolio, 362-4th T.M., Securities Law Aspects of Employee Benefit Plans, deals with the registration requirements under federal securities laws, as well as the executive compensation proxy disclosure and other reporting requirements, the short-swing profits recovery rules, and the application of tender offer requirements to executive compensation arrangements.

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Tax Management Portfolio, 362-4th T.M., Securities Law Aspects of Employee Benefit Plans, deals with the registration requirements under federal securities laws, as well as the executive compensation proxy disclosure and other reporting requirements, the short-swing profits recovery rules, and the application of tender offer requirements to executive compensation arrangements.


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AUTHORS

KIRK F. MALDONADO
Kirk F. Maldonado, B.A., University of Nebraska at Omaha (1975); J.D., Creighton University (1978); M.L.T., Georgetown University (1981); member, California Bar; Attorney, Employee Plans and Exempt Organizations Division, Office of Chief Counsel, Internal Revenue Service (1978-1981).

SUSAN J. DALEY
Susan J. Daley, B.A., University of Connecticut (summa cum laude 1978); J.D., Harvard Law School (1981); member, American Bar Association, Section of Taxation (chair, Securities Law Subcommittee of the Employee Benefits Committee); member, Chicago Bar Association, Federal Taxation Committee (former chair), Employee Benefits Committee (former chair); Illinois State Bar Association Employee Benefits Section Council (former chair); member, American College of Employee Benefits Counsel; member, National Association of Stock Plan Professionals (Chicago Chapter President); member, BNA Pension & Benefits Advisory Board.

TABLE OF CONTENTS

Detailed Analysis

I. Overview

A. Topics Covered

B. Caveat

C. Preliminary Considerations

II. Registration Requirements

A. Focus

B. Organization

C. 1934 Act

1. General Rule

2. Employee Benefit Plans

D. 1933 Act

1. Applicability of 1933 Act

a. Classes of Securities

b. Statutory Definition of “Security”

c. Participation Interests

(1) Involuntary, Noncontributory Plan

(2) Involuntary, Contributory Plan

(3) Voluntary, Noncontributory Plan

(4) Voluntary, Contributory Plan

(a) Exemption from Registration

(b) Court Decisions

(c) Employee Contributions

(i) Section 401(k) Contributions

(ii) Wage Concessions

(iii) Rollover Contributions

(iv) Recontributions

(v) Loan Repayments

(d) Right to Demand Stock

d. Existence of a “Sale”

(1) Statutory Definition

(2) Regulatory Definition of “Sale”

(a) Employer Contributions

(b) Conversion of Plan

(3) Investment Elections

2. Exemptions

a. Participation Interests

(1) Statutory Provisions

(2) Restatement

(3) Interpretive Issues

(a) Maintained by a Bank

(b) Multiple Employer Plans

(c) Employee Contributions

b. Employer Stock

(1) General Statutory Exemptions

(a) Purchases on Behalf of Plan

(i) Open Market Purchases

(ii) Purchases from Employer

(iii) Purchases from Affiliates

(b) Participant-Directed Purchases

(2) Regulatory Safe Harbors

(a) Rule 147

(b) Regulation D

(i) General Rules

(ii) Rule 504

(iii) Rule 505

(iv) Rule 506

(v) Rule 701

3. Registration

E. Sales of Stock by Plan

1. Definitions

a. Affiliate

(1) General Rule

(2) Application to Plan

b. Registered Stock

c. Restricted Stock

2. Plan Is Not an Affiliate

a. Sales on Behalf of the Plan

(1) Registered Stock

(2) Restricted Stock

(a) General Rules

(b) Bonus Stock Exemption

b. Sales Made at the Direction of the Participant

F. Distributions

G. Resales by Participants

1. Restricted Stock

a. Non-Affiliate

(1) General Rule

(2) Special Rule

b. Affiliate

2. Registered Stock

a. Non-Affiliates

b. Affiliates

(1) Rule 144

(2) Private Sales

(3) Registration

III. Form S-8 Rules

Introductory Material

A. Registrants

1. Employer

2. Plan

3. Qualifying Plans

4. Inappropriate Purpose

5. Qualifying Participants

a. Employing Entity

b. Categories of Individuals

c. Limitations

6. Registration of Interests

7. Audit Requirement

B. Component Parts

1. Prospectus

a. Documents Constituting Prospectus

(1) General Rule

(2) Multiple Documents

(3) Legend

(4) Use of SPD

(5) Timing of Delivery

(a) Initial Delivery

(i) ERISA

(ii) Securities Law

(b) Updating

b. Required Information

c. Retention of Documents

d. Impact of Delinquent Employer Form 10-K Filings

2. Registration Statement

a. Facing Page

b. Incorporation by Reference

c. Description of Securities

d. Interests of Named Experts and Counsel

e. Indemnity

f. Exemption

g. Exhibits

h. Undertakings

(1) Rule 415 Offering

(2) Subsequent Documents

(3) Indemnification

i. Signatures

(1) Employer

(2) Plan

C. Availability of Documents

1. Mandatory Disclosure

a. Annual Report

b. Shareholder Communications

2. Documents Available Upon Request

a. General Rule

b. ERISA Plans

c. Nonqualified Deferred Compensation Plans

3. Filing Not Required

4. Effective Date

5. Registration Fees

a. Employer Stock

(1) General Rule

(2) Resales

(3) Additional Securities

(a) General Rule

(b) Reoffer Prospectus

b. Participation Interests

D. Reoffer Prospectus

1. Form S-3 Unavailable

2. Availability of Form S-3

3. Types of Securities

a. Control Securities

(1) Definition

(2) Consequences

(a) Inclusion in Reoffer Prospectus

(b) Filing

b. Restricted Securities

(1) Definition

(2) Consequences

(a) Inclusion in Prospectus

(b) Filing

4. Selling Shareholders

a. Control Securities

b. Restricted Securities

IV. Section 16

Introductory Material

A. Affected Persons

1. General Rule

a. 10% Shareholders

b. Directors

c. Officers

(1) General Rule

(2) Consistency

(3) Rulings

2. Beneficial Ownership

a. 10% Shareholder Test

(1) Applicable Standard

(a) Current Powers

(b) Future Powers

(2) Employee Benefit Plans

(a) Applicable Standards

(i) Allocated Shares

(ii) Unallocated Shares

(b) Protected Parties

b. All Other Purposes

(1) Pecuniary Interest

(a) Defined Benefit Plans

(b) Defined Contribution Retirement Plans

(2) Indirect Pecuniary Interest

3. Changes in Status

a. Prior Acts

(1) Officers and Directors

(2) 10% Shareholders

b. Subsequent Acts

(1) Officers and Directors

(2) 10% Shareholders

4. Trusts, Trustees and Beneficiaries

a. Trusts

(1) Beneficial Ownership

(2) Officer or Director as Trustee

b. Trustees, Beneficiaries and Settlors

c. Deemed Trustees

B. Filings Required

1. Other Filings

2. Initial Filing

3. Changes in Ownership

a. General Rules

b. Specific Rules

c. Special Timing Rules

(1) Rule 10b5-1 Programs

(2) Discretionary Transactions

(3) Overriding Limitation

4. Annual Statements

a. General Rule

b. Timing

c. Content

d. Availability of Data

e. Exceptions

5. Special Rules

a. Filing

(1) General Rule

(2) Electronic Filing

(3) Retroactive Loss of Exemption

(4) Website Posting

b. Disclosure of Noncompliance

(1) Disclosure Required

(2) Depth of Inquiry Required

c. Trust Holdings and Transactions

(1) Trust

(2) Trustees

(3) Participants

6. Derivative Securities

a. Definition

(1) General Rule

(2) Exceptions

(3) Related Terms

(a) Call Equivalent Position

(b) Put Equivalent Position

(c) Definitions

b. Aggregation

c. Reporting Requirements

(1) Call Equivalent Position

(2) Put Equivalent Position

(3) Vesting

d. Profit Recovery Standards

(1) Deemed Purchases

(2) Deemed Sales

(3) Treatment of Certain Transactions

(a) Exempt Transactions

(b) Non-Exempt Transactions

(c) Stock for Stock Mergers

(4) Cancellation

C. Rule 16b-3

1. Overview

2. Tax-Conditioned Plans

a. Plans to Which Exemption Applies

b. Transactions to Which Exemption Applies

3. Grant or Award Transactions

a. Alternative Exemptions

b. Definition of Nonemployee Director

c. Scope of Approval

4. Dispositions to the Employer

5. Discretionary Transactions

a. Applicability

b. Required Conditions

c. Sole Exemption

6. Sales into Open Market

V. Executive Compensation Disclosure Rules

A. Applicability

B. Covered Compensation

1. Definition of Plan

2. Third Party Transactions

3. Entity for Whom the Services Are Performed

4. Possible Duplication

5. Nondiscriminatory Plans

C. Named Executive Officers

1. Categories of Individuals

2. Definition of Executive Officer

3. Ranking

4. Exclusions

a. Minimum Compensation

b. Overseas Compensation

5. Changes in Status

D. Special Rules for Certain Classes of Employers

1. Smaller Reporting Companies

a. Required Disclosures

b. Exempted Disclosures

2. Foreign Private Issuers

3. Registered Investment Companies

E. Required Information

F. Partial Disclosures

1. Permitted Omissions

2. Election of Directors

G. Compensation Discussion and Analysis

H. Summary Compensation Table

1. General Instructions

a. Relevant Period

b. Prior Periods

c. Form of Compensation

d. Deferred Compensation

e. Indeterminate Compensation

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Column (c)

d. Column (d)

e. Column (e)

f. Column (f)

g. Column (g)

h. Column (h)

i. Column (i)

(1) Perquisites

(a) Major Items

(b) Valuation

(2) Tax Gross-Ups

(3) Stock Discounts

(4) Dividends

j. Column (j)

3. Prior Law

I. Grants of Plan-Based Awards

1. General Instructions

a. Separate Disclosure

b. Consideration Paid

c. Tandem Grants

d. Incentive Plan Awards

e. Repriced or Materially Modified Grants

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Columns (c) through (e)

d. Columns (f) through (h)

e. Column (i)

f. Column (j)

g. Column (k)

h. Column (l)

J. Narrative Description of Additional Material Factors

K. Outstanding Equity Awards at Fiscal Year-End

1. General Instructions

a. Multiple Awards

(1) Bifurcation of Single Grant

(2) Aggregation of Multiple Awards

(3) Definitions

b. Valuation

c. Satisfaction of Performance Condition

d. Explanations

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Column (c)

d. Column (d)

e. Column (e)

f. Column (f)

g. Column (g)

h. Column (h)

i. Column (i)

j. Column (j)

L. Option Exercises and Stock Vested

1. Column (a)

2. Column (b)

3. Column (c)

4. Column (d)

5. Column (e)

M. Pension Benefits Table

1. General Instructions

a. Covered Plans

b. Benefit Allocation

c. Material Factors

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Column (c)

d. Column (d)

e. Column (e)

N. Nonqualified Deferred Compensation

1. General Instructions

a. Covered Plans

b. Reconciliation with Summary Compensation Table

c. Material Factors

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Column (c)

d. Column (d)

e. Column (e)

f. Column (f)

O. Employment Contracts and Termination of Employment and Change in Control Arrangements

P. Director Compensation Table

1. General Instructions

2. Specific Instructions

a. Column (a)

b. Column (b)

c. Column (c)

d. Column (d)

e. Column (e)

f. Column (f)

g. Column (g)

h. Column (h)

Q. New Plan Benefits

1. Narrative Explanation

a. General Rules

b. Amendments

(1) Nature of Amendments

(2) Completion of Item

2. Tabular Explanation

a. Covered Individuals

b. Level of Benefits

(1) Benefits Are Determinable

(2) Benefits Are Not Determinable

c. Pension or Retirement Plans

(1) Past Service Benefits

(2) Current Costs

d. Stock Plans

(1) Plan Information

(2) Participant Information

R. Performance Graph

1. Employer's Performance

2. Broad-Based Index

3. “Peer” Index

4. General Rules for “Peer” Indices

5. Transactions and Special Situations

VI. Stock Plan Disclosure

A. Introduction

B. Tabular Format

C. Equity Compensation Plans

D. Exclusions from Disclosure

E. Manner of Disclosure

1. Aggregation Based on Whether Shareholder-Approved

2. Evergreen Clauses

3. Restricted Stock and Restricted Stock Units

4. Performance Share Awards and Phantom Shares

5. Stock Appreciation Rights

6. Plans, Amendments and Grants Subject to Shareholder Approval

7. Narrative Description

8. Additional Disclosure for Awards Other Than Standard Options

9. Different Classes of Stock

10. Filing Requirement

11. Employee Stock Purchase Plans

12. Assumed Plans

VII. Prohibitions and Other Requirements for Directors and Officers

A. Prohibition on Insider Trading During Pension Blackout Periods

1. Pension “Blackout Period” Defined

2. Issuers and Persons Subject to Trading Prohibition

3. Transactions Subject to Trading Prohibitions

4. Transactions Not Subject to Trading Prohibitions

5. Notice of Blackout Period

6. Remedies

B. Executive Compensation and Corporate Governance Reform

1. Impact of Sarbanes-Oxley Act

2. Related Person Transactions

3. Corporate Governance

a. In General

b. Compensation Committee and its Charter

c. Compensation Committee Processes and Procedures

d. Compensation Committee Interlocks and Insider Participation

(1) Identification of Members

(2) Absence of Committee

(3) Interlocks

(4) Exempted Entities

e. Compensation Committee Report

VIII. Form 8-K Rules

IX. Other Securities Issues

A. 10b5-1 Programs

B. Option Repricing as a Tender Offer

1. Reasons for Option Repricing

2. Tender Offers

3. Rule 13e-4

4. 2001 SEC Exemptive Order

5. No-Action Letter Relief from Prompt Payment Requirement in Connection with Code 409A

C. Tender Offer Best Price Rule

D. Relationship Between Securities Laws and ERISA Standards


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Securities and Exchange Act of 1934 16 Excerpts: Directors, Officers, And Principal Stockholders - Disclosures

Worksheet 2 SEC Rule 16b-3, 17 CFR 240.16b-3, Employee Benefit Plan Transactions

Worksheet 3 SEC Rule 701, 17 CFR 230.701, Exemption for Offers and Sales of Securities Pursuant to Certain Compensatory Benefit Plans and Contracts Relating to Compensation

Worksheet 4 SEC Regulation D (Rules 501–508), 17 CFR 230.501–.508, Rules Governing the Limited Offer and Sale of Securities Without Registration Under the Securities Act of 1933

Worksheet 5 SEC Rule 147, 17 CFR 230.147, “Part of an Issue,” “Person Resident,” and “Doing Business Within” for Purposes of 3(a)(11)

Worksheet 6 SEC Rule 144, 17 CFR 230.144, Persons Deemed Not To Be Engaged in a Distribution and Therefore Not Underwriters

Worksheet 7 Item 402, 17 CFR 229.402, Executive Compensation

Worksheet 8 Item 10 of 17 CFR 240.14a-101, Compensation Plans

Worksheet 9 SEC Release No. 34-37260 (6/14/96), Ownership Reports and Trading by Officers, Directors, and Principal Security Holders

Worksheet 10 SEC Release Nos. 33-8600 and 34-52202 (8/9/05), Ownership Reports and Trading by Officers, Directors, and Principal Security Holders

Worksheet 11 SEC Release No. 34-46421 (9/3/02), Sarbanes-Oxley Act Amendments to Rules on Ownership Reports and Trading by Officers, Directors and Principal Security Holders

Worksheet 12 SEC Release Nos. 33-8048 and 34-45189 (1/2/02), Disclosure of Equity Compensation Plan Information

Worksheet 13 SEC Rel. Nos. 33-8732A and 34-54302A (9/8/06), Executive Compensation and Related Person Disclosures: Final Rule Excerpts - Summary and Overview

Worksheet 14 SEC Release Nos. 33-8765 and 34-55009 (12/29/06), Executive Compensation Disclosure: Interim Final Rule Excerpts - Summary and Transition Guidance

Bibliography

OFFICIAL

Statutes:

ERISA:

SEC Regulations:

Treasury Regulations:

DOL Regulations:

DOL Advisory Opinions:

DOL Prohibited Transaction Exemptions:

SEC Releases:

Treasury Rulings:

Cases:

SEC No-Action Letters:

SEC Guidance:

Public Laws and Congressional Reports:

Other:

UNOFFICIAL

Periodicals & Handbooks:

1974-2000

2001

2002

2003

2004

2005

2006

2007