Accounting Case Employee Benefit by ukr15189

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Accounting Case Employee Benefit document sample

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									Current accounting issues concerning
          employee benefits

           October 13, 2008
IFRS– retirement plans

Some matters for consideration……
   ►   Multi-employer plans
   ►   Lump sum payments
   ►   Gain / loss recognition
   ►   Overfunded plans


 Our perspective
  U.S. actuaries not prepared to produce IFRS valuation reports
  HR may not understand financial / tax implications well enough to request and
   provide appropriate data.
  Multi-functional (HR, tax, legal, financial reporting, accounting, payroll)
   administrative process documentation and modification due to IFRS
   standards.
  Third party administration challenges.

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IFRS– compensation programs

Some matters for consideration……
   ►   Pay and performance alignment
   ►   Pro-rata vesting
   ►   Deferred taxes and chargeback agreements
   ►   Recognition of employment tax costs

 Our perspective
  Process and plan redesign considerations surrounding performance metrics.
  Multi-functional (HR, tax, legal, financial reporting, accounting, payroll)
   administrative process documentation and modification due to IFRS
   standards.
  Data and analysis challenges of financial modeling for share-based
   compensation arrangements.
  Third party administration challenges.


   3
Diagnostic activities


    Workstream                                Activities


 Accounting and         ► Assess universe of retirement plans and
 reporting                compensation programs
                        ► Document non-U.S. retirement plans and related
                          IFRS positions already taken, if any
                        ► Identify the major GAAP differences for retirement
                          plans and compensation programs and provide an
                          assessment of where the Company’s current
                          Financial Reporting will be affected by IFRS
                        ► Identify accounting areas requiring further
                          investigation and evaluation that could be addressed
                          in the next phase of the project
                        ► Review financial documentation produced by
                          actuaries, identify areas for further study


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Diagnostic activities


    Workstream                               Activities


 Tax                    ► Coordinate accounting, reporting and tax workstream
                          associated with compensation programs and
                          retirement plans
                        ► Identify the nature of potential effects of IFRS
                          conversion on existing and future tax positions
                        ► Evaluate impact of IFRS on compensation related
                          chargeback agreements
                        ► Identify potential conversion considerations in
                          connection with third party administrator reporting
                          packages and administrative processes
                        ► Identify matters requiring further investigation and
                          evaluation



    5
Diagnostic activities


        Workstream                         Activities


 Business processes     ► Assess  data challenges for share-based
 and systems              compensation arrangements
                        ► Evaluate ability of current third party
                          administrator's to provide required reporting
                          data for compensation programs and
                          retirement plans




    6
Diagnostic activities


        Workstream                            Activities


 Regulatory and         ► Understand the company's regulatory reporting
 industry                 requirements in each jurisdictions and assess IFRS
                          impact
                        ► Evaluate impact of regulatory rules on required
                          transitional elections
                        ► Evaluate impact of IFRS on compensation and
                          retirement plan reporting




    7
Diagnostic activities


        Workstream                         Activities


 Change                 ► Raise awareness of the IFRS issues within the
 management,              company and give momentum to the IFRS
 communication and        conversion project
 training               ► Understand the company's organizational
                          structure and knowledge management approach
                        ► Develop and execute communication protocols
                        ► Recommend an overall training roadmap to
                          embed IFRS knowledge in the organization
                        ► Clarify roles and responsibilities




    8
Issues or opportunities?

 ►What is our long-term pension funding strategy?
 ►How can we maximize our tax deductions?
 ►What is the impact on company cash flow?
 ►Do these changes impact our loan covenants and financing strategies?
 ►What is the effect under FAS109?




   9
Pension Protection Act (PPA)

► Pension    Protection Act signed into law in August 2006
► Generally   effective for plan years beginning on or after 1 January
  2008
► Requires    higher funding levels to maintain qualified plan status
► Deduction    limits
    ►   Maximum deductible amount had increased from 100% to 150% of the
        current plan liabilities
    ►   Increases allowable deductions for an employer that maintains both a
        defined benefit and defined contribution plan




   10
FAS 158

► FASB    issued statement 158 on September 29, 2006
          effective for company fiscal years ending after
► Generally
  December 15, 2006
► Amends    FASB Statements No. 87, 88, 106, and 132(R)
► Requires balance sheet recognition of an asset for a plan’s
  overfunded status or a liability for a plan’s underfunded status
► Requires   fiscal year-end measurement date for all employers
► Balance sheet changes flow through other comprehensive
  income (net of tax), not P&L
► Immediate   recognition of gains, losses, plan amendments, etc.




  11
Coordinating FAS 158 and PPA

                   FAS 158                                     PPA

  ► Modifications    to funding,              ►   Tax deductible contribution
        investment, and benefit policies          increases

  ► Budgeting      & disclosure               ►   Assess whether plan is at-risk or
        implications due to fiscal year-end       subject to benefit restrictions
        measurement date requirement
                                              ►   Long-tem funding strategy
  ► Implications     for unfunded                 opportunities
        obligations on loan covenants and
                                              ►   Increased reporting and
        financing strategies
                                                  disclosure requirements
  ► Determination     and segregation of
                                              ►   Impact on design,
        current and non current amounts
                                                  communication and operation of
        pursuant to FAS 109
                                                  pension plans




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Executive compensation-Code Section 162(m)

►Annual   $1 million deduction limit applies to:
 ► Compensation    other than “performance-based compensation”
 ► “Covered   employees” of public companies

►Performance-based      compensation
 ► Compensation     paid solely upon attainment of one or more pre-established,
    objective performance goals set up by a compensation committee of outside
    directors
 ► Shareholder    approval of the goal and compensation committee certification
    that the goal is met




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Executive compensation-Code Section 162(m)

►PLR      200804004-reversed previous IRS position
    ► Compensation      is not “performance based” if payments are made upon
        involuntary termination without regard to performance goal

► Revenue       Rule 2008-13- confirms the IRS’s new position
    ► Provides    a prospective effective date if either:
         ►The   performance period begins on or before January 1, 2009
         ►The  compensation is paid pursuant to contract in effect on February
          21, 2008 (without renewals or extensions)

► Levelof authority for claiming a deduction could have significant
  impact on Financial statement and tax return




   14
Executive compensation-Code Section 162(m)

►FAS    109/FIN 48 support
    ►   Assess documentary compliance
    ►   Assess operational compliance

►Develop     processes and controls
    ►   Composition of Compensation Committee
    ►   Timing of shareholder approval
    ►   Timing of goal-setting and goal-attainment certification
    ►   Structure in place to ensure performance goals are objective




   15
Executive compensation- equity/incentives

►    Assess global equity tax deductions
         ►   U.S. deduction is not available for foreign awards
         ►   Availability of deduction in a particular country
         ►   Country specific requirements for securing a deduction
             (corporate chargeback arrangements, etc.)
         ►   Does the plan meet tax favored status in foreign country?




    16
Executive compensation-Code Section 280G

►Code      Section 280G Mitigation Strategies
  ►     Shareholder vote for privately held corporations
  ►     Demonstrate with “clear and convincing evidence” that potential parachute
        payments constitute reasonable compensation for
             ►   Pre-change in control services
             ►   Post-change in control services
             ►   Abiding by a non-compete




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Executive compensation-Code Section 280G

► FAS   109/FIN 48 support
    ►   Review Code Section 280G calculations
    ►   Assess risk associated with Section 280G tax positions
    ►   Assess operational and documentary compliance with Section
        280G where relevant – e.g., shareholder approval requirements
► Code Section 280G gross-ups require proxy disclosure statements
  under new SEC proxy disclosure rules.




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Employee benefits

► Generally  exempt from income taxes therefore few issues that may
  trigger the application of FIN 48
► The existence of the Employee Plans Compliance Resolution System
  could meet the conditions of an administrative practice or precedent
► Few   exceptions to the general rule include:
    ►   Plan invested in UBIT triggering investments
    ►   Application of 409(p) to ESOPs




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Health and welfare plans

►General      IBNR ( claims incurred but not reported)
    ►   Amount of deduction
    ►   §461 all events test

►Pre-funding         through VEBA to accelerate deductions for:
    ►   Claims incurred but not reported
    ►   Retiree medical
    ►   Severance
    ►   Disability
    ►   Others




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Health and welfare plans

►Determination     of UBIT Liability
    ►   Structure of trust and treatment of income
    ►   Calculation of trust income used to pay administrative expenses
    ►   Distributions or items other than administrative expense?




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Health and welfare plans

►Accelerated     Severance Plan Funding
    ►   Amount available for accelerated deduction
    ►   Segregated funds or not segregated funds
►Retiree    Medical Plans – Self Funding FAS 106 Liabilities
    ►   Segregation of FAS 106 asset
    ►   Ruling in Wells Fargo case
►Qualified    SUB payments
    ►   How were pre-funding and deduction determined?




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Other Areas to Consider

► 401(k)       acceleration
        ►   Compensation earned based on 404(a)(6) or Notice 2002-48
            special exceptions

► 404(k)       deduction
        ►   Statutory requirements- amount of deduction
        ►   Structure of the funding arrangement

► Fringe       benefits and perquisites
        ►   Corporate aircraft – consider valuation aspects, and interplay of
            income and deduction
        ►   Country Club memberships, tickets, suites, and corporate
            apartments




   23
Employee benefit accounting

► FAS  132(R)-a Employers’ Disclosures about Postretirement Benefit
  Plan Assets (proposed FSP)
    ►   Application of FAS 157
    ►   Proposed effective date
    ►   Management responsible for fair valuation




   24
IRS large plan audit initiative

► The IRS has instituted changes in targeting and performing standard
  audits of qualified plans. The new philosophy emphasizes:
    ►   Risk-based targeting of plans chosen
    ►   A limited and focused audit methodology that expands only if
        noncompliance is identified
► Ifthe initial review does not yield problems and appropriate controls
  exist, the agent will close the audit




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