The NASPP Blog

Today I conclude my coverage of the proposed regulations on Section 423 ESPPs by discussing the groups of employees that the regulations would allow to be excluded from participation in an ESPP.

Allowable Exclusions Under the Proposed ESPP Regs

Section 423 requires that all employees of the company be allowed to participate in the ESPP, except that the company can exclude (i) employees that have completed less than two years of service to the company, (ii) employees that work less than 20 hours per week or less than five months per year, or (iii) highly compensated employees as defined in Section 414(q).

Some But Not All: The proposed regulations would clarify that it is permissible for the company to exclude employees that have completed less service or work less hours or months than the time periods specified in Section 423, provided the exclusion is applied equally to all of the company’s employees.  For example, the company could exclude only those employees that have completed less than six months (rather than two years) of service or only employees that work less than 10 hours per week (rather than 20 hours). 

Highly Compensated Employees:  The proposed regulations would expand the definition of highly compensated employees to also allow Section 16 insiders to be excluded either in addition to, or instead of, employees that meet the definition of “highly compensated” under Section 414(q). The regs would also allow companies to exclude only a subset of employees that earn above a specified level of compensation, provided that the employees excluded are considered highly compensated under Section 414(q) and the exclusion is applied equally to all employees in all entities that are permitted to participate in the plan. Thus, the company would not have to exclude all highly compensated employees under Section 414(q) in order to exclude Section 16 insiders or those above a certain compensation level. For example, although, for 2009, Section 414(q) defines highly compensated employees as those earning above $110,000, a company could choose to exclude only those highly compensated employees that earn above a higher threshold, say, $300,000.

Non-U.S. Employees:  The proposed regulations would also allow companies to exclude non-U.S. employees if local law prohibits their participation in the plan or if they would have to be allowed to participate in a manner that would cause the plan to violate the requirements of Section 423. [This is primarily a concern where non-U.S. employees are employed by the U.S. company, rather than by a foreign subsidiary. Companies can exclude employees in foreign subsidiaries simply by choosing not to designate the subsidiary as one of the corporate entities participating in the plan. While all employees of the sponsoring entity must be allowed to participate, it is not necessary to allow employees of the entity’s subsidiaries to participate in the plan. Of course, if a subsidiary is allowed to participate, then all employees of the subsidiary must be permitted to participate on an equal basis with the employees in the sponsoring/parent entity.]

Likewise, the proposed regulations would allow companies to permit non-U.S. employees to participate in the plan on a less favorable basis than U.S. employees, if so required under local law. The reverse is not true, however; if local law requires additional benefits under the plan to be extended to non-U.S. employees, those benefits must also be extended to U.S. employees if the non-U.S. employees participate in the plan.

For more on the proposed regs, see “IRS Proposes New Regulations for Section 423 ESPPs.”

Social Security Taxable Wage Base Maximum Announced for 2009

If you missed it, on October 16, the Social Security Administration announced that the maximum wage base for Social Security tax purposes will increase to $106,800 in 2009 (up from $102,000 in 2008). The withholding rate remains the same at 6.2%, resulting in a maximum amount of Social Security withholding of $6,621.60 in 2009 (up from $6,324 in 2008).

See the NASPP Alert “Social Security Wage Base Increases for 2009.”   

Stock Plan Administrators’ Salary Survey

I’m excited to announce that in early 2009 we will publish a new edition of the Stock Plan Administrators’ Salary Survey, co-sponsored by Salary.com.  We last published this survey in 2003 and we’ve received many requests from our members to update it.  Now, with the help of Salary.com, we can!  Look for the survey in late January–or, if you can’t wait that long, renew your NASPP membership today to receive an advance copy.

That Time of Year Again 

No, not Christmas–that’s still two months off, but it is once again time to renew your NASPP membership. We have lots of great programs in store for 2009, starting with Alan Dye’s annual webcast on Section 16 on January 29.  We’re also planning webcasts on IFRS 2 and evaluating service providers.  Renew your membership today to ensure that you don’t miss out on any of the NASPP’s critical resources (and get an advance copy of the Stock Plan Administrators’ Salary Survey). For our service provider members, now is a great time to explore our newly available discounted rates on group memberships; contact our Programs Director, Danyle Anderson, at danderson@naspp.com for more information.

– Barbara