A week after telling everyone to “relax” about the proposed executive compensation changes in the Tax Cuts and Jobs Act, we have to admit that we have been watching anxiously as the proposed bills move through the legislative process. The executive compensation items that we discussed last week  have experienced quite a journey in the past week, with the House Ways and Means Committee making some welcome changes and the Senate Finance Committee introducing its own new bill. We briefly provide the following updates.

Amendments to the House bill

The House bill was amended twice before being passed by the Ways and Means Committee. Further changes are still possible because the entire House now will debate and vote on a bill. The key changes that the Ways and Means Committee made to the bill include the following:

  • Code Section 409B was withdrawn from the bill, meaning that Code Sections 409A and 457(b), and all other current guidance for nonqualified plans, should remain in place. The summary of the amendment states that current law treatment of deferred compensation is preserved. That was a welcome development.
  • New Code Section 83(i) was added, which would allow certain privately held company employees to defer recognition of income related to stock options. It’s not entirely clear how this new Code Section would be reconciled with existing deferred compensation guidance.

The proposed changes to Code Section 162(m) and with respect to parachute payments made to covered executives of tax-exempt organizations, however, remained intact.

Senate Finance Committee proposed bill

The Senate Finance Committee introduced its proposal of the Tax Cuts and Jobs Act, although it did not make available specific legislative language. Unfortunately, the proposed Senate bill is nearly identical to the original House proposal regarding the taxation of deferred compensation at vesting rather than payment, repeal of the performance-based exception to Code Section 162(m), and imposition of a 20 percent excise tax on tax-exempt organizations that pay excess parachute payments to covered officers. The main difference between the proposed Senate bill and initially proposed House bill is that the Senate bill generally would allow deferred compensation earned for services performed before Jan. 1, 2018, to be paid as late as Dec. 31, 2026 (rather than Dec. 31, 2025).

The Senate Finance Committee’s proposal also added restrictions on deferrals that executives of tax-exempt and governmental entities could make to 457(b), 403(b) and 401(k) plans.

Looking ahead

In short, the amendments to the House bill provided some welcome relief, although many practitioners are still concerned about the proposed changes to Code Section 162(m) and to severance payments to executive of tax-exempt organizations. The proposed Senate bill, in contrast, brought back all of the original concerns from the initial House bill.

There may still be reason to be optimistic about the chances of Congress preserving nonqualified deferred compensation in its current form. The reason is that both the original House Ways and Means Committee proposal and Senate Finance Committee proposal were nearly identical to proposed changes introduced by Congressman Dave Camp in 2014. There was not much interest in tax reform back then, so little thought was given to any of those proposals.

Now that Congress does have an interest in tax reform, it appears that both the House and Senate used Mr. Camp’s proposal as a starting point. Once the House Ways and Means Committee had a chance to review the deferred compensation proposals, it realized that it made sense to preserve deferred compensation. If that’s the case, perhaps the Senate Finance Committee will reach a similar conclusion once it has a chance to study the issue.

Both proposals have a long way to go before becoming law. What they show is that the members of Congress have their sights on deferred compensation. Stay tuned, and consider calling your members of Congress.


Senator Portman has filed an amendment to the Senate bill that would strike the nonqualified deferred compensation plan items, thereby making the Senate bill consistent with the latest House bill in preseving the current nonqualified deferred compensation regulatory structure.