Securities and Exchange Commission Archives

Addressing DOJ’s New Compliance Focus on Executive Compensation

by Ralph E. DeJong, Michael W. Peregrine, Sarah Walters and Eugene I. Goldman | May 19, 2023 | Executive Compensation

The new compliance focus on executive compensation, as announced by the US Department of Justice (DOJ) on March 3, 2023, has significant implications for how healthcare organizations address both corporate compliance and compensation programs for their executives. It also raises new issues for the board of directors’ oversight of compliance and compensation functions.

In a recent webinar, McDermott’s Ralph E. DeJong, Michael W. Peregrine, Sarah E. Walters and Eugene I. Goldman discussed the new policies, possible responses by management and boards, and potential strategies for responding to the policy goals of the DOJ and the Delaware Chancery Court.

Access the webinar and top takeaways here.

When Are Cryptocurrencies Appropriate Investments for Retirement Plans and IRAs?

by Brian Tiemann and McDermott Will & Emery | Jun 7, 2022 | Employee Benefits, Fiduciary and Investment Issues, Privacy and Data Security, Retirement Plans

The US Department of Labor (DOL) recently issued guidance for the first time on the investment of retirement plan assets in cryptocurrencies. Compliance Assistance Release No. 2022-01 cautions 401(k) plan fiduciaries to “exercise extreme care” before allowing participants to invest plan assets in cryptocurrencies because cryptocurrencies “present significant risks and challenges to participants’ retirement accounts, including significant risks of fraud, theft, and loss.” In this Intellectual Property & Technology Law Journal article, McDermott Partners Andrea S. Kramer and Brian J. Tiemann outline what retirement plan fiduciaries need to know about cryptocurrency investments in the current market.

Access the article.

What the Demise of the DOL’s Fiduciary Rule Means for Plan Sponsors

by Brian Tiemann | May 29, 2018 | Employee Benefits, Employee Stock Ownership Plans (ESOPs), Fiduciary and Investment Issues, Retirement Plans

The Department of Labor’s fiduciary rule has recently been rendered unenforceable following a recent 5th Circuit Court of Appeals decision. In an article published by the Society for Human Resource Management, McDermott partner Brian Tiemann weighs in on what this means for plan sponsors. “As a result of the Fifth Circuit’s ruling, the suitability standard is effectively restored” for advising plan participants on investments, distributions and rollovers, Tiemann observed. He also points out that advisors may want to revise service agreements with plan fiduciaries to clarify the scope of advice that fiduciaries will provide participants.

Access the full article.

Originally published by the Society for Human Resource Management, May 2018.

SEC Whistleblower Update

by Paul Helms | Mar 13, 2018 | Employment

The Supreme Court recently clarified the scope of SEC whistleblower retaliation provisions. Though the decision limits retaliation actions, employers should continue to avoid conduct that can be interpreted as retaliation under other statutes, and should find ways to encourage internal reporting.

Access the full article.

Tax Reform Surprises and Strategies with the New 162(m) Rules

by Andrew Liazos and Diane Morgenthaler | Feb 27, 2018 | Employee Benefits, Executive Compensation

Section 162(m) of the Internal Revenue Code (Code) previously limited the tax deduction to $1M annually for covered employee compensation paid by a company that is publicly traded, subject to some important exceptions. The Tax Cuts and Jobs Act modified the reach of Code Section 162(m) in several significant ways.

Expanding the number of companies to which Section 162(m) will apply, including non-public companies that register debt or equity securities with the Securities and Exchange Commission, like foreign companies publicly traded through American depositary receipts (ADRs);
Expanding the number of covered employees to five and including the chief financial officer, with a provision that any covered employee after 2016 permanently remains a covered employee;
Eliminating performance-based and commission-based exceptions to the $1M deduction limit; and
Grandfathering certain compensation provided under a written and binding agreement in effect on November 2, 2017, if no material changes are made to such agreement.

These changes will have a significant effect not just on performance-based compensation, but also on stock options, stock appreciation rights and even nonqualified deferred compensation plans and supplemental executive retirement plans. To navigate these changes, Andrew Liazos stressed the importance of understanding the new grandfathering provisions under Section 162(m) and their corresponding planning opportunities at the Mid-Year Meeting of the American Bar Association’s Tax Section on February 10, 2018 in the attached slides.

View From McDermott: SEC Proposes New Pay Versus Performance Disclosure Rules

by Andrew Liazos | Jun 23, 2015 | Executive Compensation

On April 29, 2015, the Securities and Exchange Commission (SEC), by a three-to-two vote, proposed new rules that would prescribe new mandatory pay-versus-performance disclosure. The proposed rule would include specific information showing the relationship between executive compensation “actually paid” and financial performance of the registrant. The proposed rule, issue under Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), would add a new Item 402(v) to Regulation S-K.

The key take-away is that covered insurers would not be allowed to use their existing pay for performance disclosure approaches to meet the requirements under the proposed rule. Instead, if the proposed rule is finalized in its current form, covered insurers would be required to include a new “Pay Versus Performance” table. Covered insurers would also be required to provide a “clear description” of the relationship between certain data elements included in the new table.

The proposed rule is “designed, in part, to enhance comparability across registrants. . .” perhaps in connection with shareholders’ “Say on Pay” votes. However, commissioners differed on the usefulness of the information that would be provided by the proposed rule, and the final vote was divided along political lines–similar to how the commissioners voted on the CEO Pay Ratio proposal.

Read the full article.

SEC Proposes New Pay versus Performance Disclosure Rules

by Andrew Liazos | Apr 30, 2015 | Executive Compensation

On April 29, 2015, the U.S. Securities and Exchange Commission (SEC) voted three-to-two to propose new rules that would prescribe a mandatory pay versus performance disclosure.

Read the full article.

SEC Finalizes Dodd-Frank Independence Rules Under Section 952

by McDermott Will & Emery | Jul 10, 2012 | Executive Compensation

by Andrew C. Liazos

On June 20, 2012, the Securities and Exchange Commission (SEC) adopted final rules to implement the compensation committee independence requirements under Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The final rules require the national securities exchanges (such as the New York Stock Exchange and NASDAQ) to establish certain minimum listing standards with respect to:

the independence of compensation committee members
the authority and responsibilities of the compensation committee
the process to be followed when selecting compensation consultants and other advisors

While the final rules allow the exchanges until June 27, 2013 to implement new listing standards after receiving approval from the SEC, new requirements could be very well be in place before the 2013 proxy season. Overall, the SEC made relatively few changes to the proposed rules that were issued in March 2011. A public company must meet an exchange’s listing standards in order to have its equity securities traded on that exchange. In addition, the SEC also amended its proxy rules to require additional disclosure if the work of a compensation consultant has raised a conflict of interest. This new requirement will be in effect for the 2013 proxy season—even if the exchanges have not finalized new listing standards—and complying with it will require action before next year’s election of directors. Please click here for a discussion of the final rules.

The Dodd-Frank Act’s Impact on Pension Plan Investment Options

by McDermott Will & Emery | May 25, 2011 | Fiduciary and Investment Issues, Retirement Plans

by Maureen O’Brien, Karen A. Simonsen and Adrienne Walker Porter

Pension plans use swaps to manage interest rate risks and other risks and to reduce volatility with respect to funding obligations. The Dodd-Frank Act established a comprehensive regulatory framework for swaps. The legislation was enacted to reduce risk, increase transparency and promote market integrity within the financial system, including the comprehensive regulation and required registration of swap dealers and major swap participants.

The Dodd-Frank Act has introduced new challenges in managing risks and liabilities of pension plans by subjecting ERISA plans to new requirements under the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). If pension plans are unable to use swaps, plan costs and funding volatility could rise sharply. This would undermine participants’ retirement security and would force employers to reserve, in the aggregate, billions of additional dollars to address increased funding volatility. In order to meet the rulemaking objectives specified under the Dodd-Frank Act, regulators and Congress have introduced significant changes that may impact how pension plans manage their funded status.

In December of 2010, the CFTC released proposed regulations outlining business conduct standards for swap dealers and major swap participants. The regulations highlighted the issue that swap dealers engaging in typical business activities with respect to “special entities” could be treated as ERISA fiduciaries. (The Dodd-Frank Act provides that a special entity includes an employee benefit plan.) ERISA provides that, generally, any transaction between a fiduciary and the ERISA plan with respect to which it owes fiduciary duties is prohibited. Therefore, in effect, the proposed regulations may preclude swap dealers from entering into swap transactions with employee benefit plans subject to ERISA. Additionally, the Department of Labor’s proposed rule relating to the definition of the term “fiduciary” under ERISA may include advisors that perform plan asset valuations, which is an activity conducted by swap dealers under the CFTC proposed regulations.
On April 12, 2011, the CFTC issued proposed regulations establishing minimum initial and variation margin requirements for non-cleared swaps entered into by CFTC-regulated swap dealers and major swap participants. Under the proposed rules, pension plans would be included in the category of high-risk financial entities, subject to the most stringent requirements. Such high-risk financial entities are required to post collateral and are limited to the type of assets that may be used to post margin. This change could significantly increase the cost of managing pension plans.
On May 4, 2011, the U.S. House of Representatives Agriculture Committee approved H.R. 1573, legislation providing the CFTC and SEC with 18 additional months to finalize many of the rules relating to swaps. The rules defining swaps-related products and participants and the rules relating to reporting recordkeeping, however, are to be finalized by July 15, 2011. The CFTC also recently released a notice reopening the comment period for many of the proposed regulations related to the Dodd-Frank Act.

Plan sponsors should continue to monitor the regulatory and legislative activity surrounding pension plans’ ability to use [...]

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