Tax Reform: New Law Delivers A Bundle Of Executive Compensation And Employee Benefits Changes For The Holidays

Akerman LLP

Akerman LLPSigned into law by President Trump on December 22, the final version of the  tax reform bill (the “Act”) is not as far-reaching on executive compensation as the earlier version we previewed. However, the Act makes several significant changes to employee benefits and executive compensation arrangements, of which employers should be aware.  This article highlights some of the primary benefits-related changes that will take effect next year, including changes to executive compensation arrangements and the Affordable Care Act.

Executive Compensation

Expansion of Code Section 162(m) Deduction Limits

Under the current Code Section 162(m), a publicly held company may only deduct up to $1 million of compensation to certain covered employees – the company’s chief executive officer and the next three highest-compensated officers (excluding the chief financial officer) as of the end of the taxable year – but that limit is undercut by exceptions for certain common types of executive compensation, such as performance-based compensation (which includes stock options) and commissions. The Act eliminates the exceptions for performance-based and commission-based compensation and expands the list of covered employees to consist of the company’s chief executive officer, chief financial officer, and the next three highest-paid officers at any point in any taxable year beginning after December 31, 2016 (with an exception for written, binding contracts that were in effect as of November 2, 2017, and which are not materially modified thereafter).

Akerman Insights:

  • Going forward, public company employers should note that gain on stock options, previously exempt as performance-based compensation, will now be included in the $1 million deduction limit. There may be opportunities to circumvent these restraints with incentive stock options.
  • These employers should also be aware that the current rule that “covered employee” status was determined as of the last day of the taxable year to structure severance arrangements in excess of $1 million is no longer available.
  • Given the uncertainty surrounding the definition of a “written, binding contract” (for example, it is unclear whether an existing agreement that requires the company’s compensation committee to set performance goals for each year would qualify), employers should analyze whether they can rely on the exemption for contracts that were in effect before November 2, 2017, and ensure that they do not take any actions to materially modify arrangements that do qualify for such exemption.
  • Depending on the effect of the loss of this deduction, public company employers may consider accelerating certain performance-based compensation payments due in 2018 to this year to take advantage of current tax rules (while still complying with Code Section 409A and securities law requirements).

Excise Tax on Tax-Exempt Organization Executive Compensation

Tax-exempt organizations have traditionally enjoyed freedom from certain limits on compensation that apply to many for-profit corporations. Under the Act, tax-exempt organizations will be subject to taxation for certain compensation paid to the five highest-compensated employees of the organization (as of any year after 2016) in excess of certain thresholds. First, tax-exempt organizations (rather than the employees) will be subject to a 21 percent excise tax on compensation to one of these individuals in excess of $1 million.  In addition, the organization will be subject to the 21 percent excise tax on certain severance arrangements that are considered “excess parachute payments.” Though the term is borrowed from the limit on corporate change-in-control payments, for these purposes, a change in control is not required.  A parachute payment is defined as compensation that (i) is contingent on the employee’s separation from employment, and (ii) exceeds three times the employee’s base amount (that is, the average of the employee’s annualized compensation for the five most recent taxable years that end before the employee’s separation from employment).  Excess parachute payments are those that exceed the base amount. The Act does exempt payments made to employees who are non-highly compensated (generally, less-than-5-percent owners and, for 2018, those who earned $120,000 or less in the preceding calendar year) and creates special rules for compensation paid to certain qualified and licensed medical professionals.

Akerman Insights:

  • Universities, hospital systems, public utilities, and other large nonprofit entities with significant executive compensation arrangements should analyze their current compensation arrangements. For example, this rule change may impact universities who have coaches or presidents/chancellors who have compensation in excess of the $1 million threshold.
  • Hospital systems should determine whether some of their highest paid executives will qualify for the special rules applicable to qualified and licensed medical professionals.

Qualified Equity Grants

The Act adds a new provision to the Code that allows a private corporation’s employees who are granted employer stock (“qualified stock”) in connection with the exercise of stock options, including statutory stock options, or in settlement of restricted stock units to elect to defer recognition of gain on the grant for up to 5 years.  Certain individuals, including the current or prior chief executive officer or chief financial officer, as well as any of the 4 highest paid officers or 1-percent owners (at any point during the 10 preceding calendar years) cannot make such elections.

This arrangement is limited to private corporations that sponsor written plans that provide at least 80 percent of the corporation’s employees with grants of either stock options or RSUs with the same rights and privileges to receive qualified stock.  Additionally, in order to take advantage of these rules, the employee must file the deferral election with the IRS no later than 30 days after the first date that the rights of the employee in such qualified stock are transferrable or no longer subject to a substantial risk of forfeiture, and employers must meet certain notice requirements.

Akerman Insights:

  • Employers may find it difficult to ensure that these types of arrangements are structured properly to comply with the numerous requirements under this provision. For example, this arrangement may not be available if the employee can sell stock back to the company, or if the company repurchases outstanding stock in certain circumstances.
  • For start-ups and other companies with low-valuations, it may still be preferable to employees to receive restricted stock and file Section 83(b) elections.

Health and Welfare Plans

Elimination of the Affordable Care Act Individual Mandate

The Act eliminates the Affordable Care Act’s individual mandate, which imposes a tax penalty on individuals who fail to maintain appropriate health insurance coverage.  The Act does not, however, repeal the Affordable Care Act, so the employer mandate, which requires large employers to offer affordable and minimum value health coverage to full time employees and their dependents, still applies.  

Akerman Insights:

  • Although this provision does not directly affect employer-sponsored plans, employers may find that certain employees are no longer interested in participating in their group health plans since they will no longer be subject to a penalty for failing to have coverage.
  • To the extent that employees are looking to drop their health insurance coverage midyear, employers should carefully follow their cafeteria plan election change rules.
  • Employers may see health insurance costs rise as younger and healthier employees drop coverage.

Retirement Plans

Extended Rollover Period for Plan Loan Offsets

An employee who terminates employment with a qualified retirement plan loan outstanding may be subject to a plan loan offset (i.e., the outstanding loan balance is paid with funds from the participant’s account and is deemed to be a distribution), which, under current law, may be rolled over to another qualified retirement plan within 60 days.  The Act extends the time by which such loan offsets may be rolled over to the due date of the individual’s tax return.

Akerman Insights:

  • This rule should be helpful for employees whose plans terminate or who separate from service while having a plan loan outstanding.
  • This extended rollover period may be helpful in coordinating loan offset rollovers in the context of acquisitions.

Repeal of Recharacterization of Roth IRA Conversions

Currently, a taxpayer who converts his or her traditional IRA to a Roth IRA may unwind, or recharacterize, the conversion until the due date of the taxpayer’s tax return the following year. The Act repeals the special rule permitting taxpayers to unwind Roth IRA conversions after December 31, 2017.

Akerman Insights:

  • Individuals considering recharacterizing their Roth IRA conversions should do so by the end of this year.

Fringe Benefits

The Act also makes a number of changes to fringe benefit arrangements. For example, it significantly narrows the exclusion from gross income and employer deduction for certain employee achievement awards by eliminating cash, gift cards, cash equivalents, vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.  In addition, the Act suspends until 2026 the exclusion from gross income for employee moving expense reimbursements and qualified bicycle commuting reimbursements. The Act also eliminates employer deductions for certain entertainment, amusement, or recreation expenses, and qualified transportation benefits, and also significantly limits the employer’s deduction for certain employee meals.   

Akerman Insights:

  • Employers should review some of the common fringe benefits they provide employees to determine if they are still cost-effective without the deductions, and educate employees that certain benefits may no longer be excludible from their gross income.

Going Forward

Now that President Trump has signed the bill into law, employers should begin reviewing their plans and benefits to anticipate any year-end planning opportunities that may be available and what changes, if any, may be needed for the upcoming year.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Akerman LLP | Attorney Advertising

Written by:

Akerman LLP

Akerman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.