The NASPP Blog

Last year we offered an Ask the Experts webcast (a program where members submit their own questions on a topic and our expert panelists address them during the session) on Restricted Stock and Unit Awards where we received a record number of questions from all of you. In fact, we received so many questions at the time that we had to stop accepting them! It became very clear to us then that companies are still struggling with how best to manage their restricted stock programs. As a result, the NASPP is pleased to provide you with another opportunity for help in managing your restricted stock programs. On October 8, just prior to the start of the 20th Annual NASPP Conference, we offer a course on “Advanced Issues for Restricted Stock.”

During this program, we will go beyond the basics and tackle some of the more technical areas companies are still struggling with –from acceleration of vesting upon retirement to compliance with IRS tax deposit requirements. Below I offer examples of two topics that you can be assured will be covered comprehensively during this course.

Deferral Elections and Restricted Stock Units

An issue that comes up frequently with deferral elections and RSUs is what to do when an employee who elected to file a deferral election in connection with the receipt of his restricted stock unit award terminates employment prior to their deferral date. The appropriate course of action in this circumstance is:

a. Immediately convert the units to shares of stock and release them to the employee.
b. Advise the employee to contact the IRS for assistance with their 409A questions.
c. Review the plan to see if the deferral date stands or is accelerated upon termination.
d. Revoke the deferral election and notify the IRS immediately of this revocation.

The impact of a termination prior to the RSU deferral date is unique to each company and stock plan, therefore, you should always review your plan to see whether you should accelerate the deferral date and release the shares to the employee immediately, or keep the original deferral date and release the shares to the participant at the date originally elected–both, of which, have tax implications that also need to be addressed and managed.

Accelerated of Vesting Upon Retirement

Companies that allow for the acceleration of vesting upon retirement under their restricted stock programs know that the administrative burden of managing these plans can be pretty tricky. One problem area with a plan that provides for acceleration of vesting upon retirement is:

a. Reporting and collecting tax because the tax event precedes the vesting event.
b. Reporting and collecting tax because the tax event follows the vesting event.
c. Reporting and collecting tax because the tax event occurs at termination of employment.

Restricted stock is taxable for income and FICA tax purposes when the award is no longer subject to a substantial risk of forfeiture. Where an award provides for acceleration of vesting upon retirement, this occurs when the recipient is retirement eligible even though the award may not have vested yet. The same rule applies to restricted stock units, but for FICA tax purposes only (RSUs are subject to income taxes apply only when the awards are paid out, regardless of when the risk of forfeiture subsides). So, for plans that provide for accelerated vesting upon retirement, the tax event precedes the vesting event, which, again, presents challenges that need to be addressed and managed.

The NASPP’s Advanced Issues for Restricted Stock course will help you respond to these challenges, and any of the other technical aspects of managing a restricted stock program that may be troubling you. Register for the NASPP’s Advanced Issues for Restricted Stock program now before the early-bird discount expires on April 13!

-Robyn