Executive Compensation Concepts, Ltd.
Executive Compensation Concepts, Ltd. 

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IRS Announces Cost-of-Living Adjustments for 2017

 

Announcing Cost of Living Adjustments affecting limits on the amount of contributions to qualified retirement plans for 2017
 
The Internal Revenue Service and the Social Security Administration announced the cost-of-living adjustments affecting limitations for qualified retirement plans and IRAs for 2017. Overall, the limitations remain flat because inflation is low.

The Consumer Price Index for All Urban Consumers is the benchmark used to determine the index and did not have the increases needed to trigger many adjustments for 2017.

As a result, some of the 2017 dollar limits will again remain unchanged and very few limits will increase, most notably the annual addition limit for Social Security Wage Base will increase from $118,000 to $127,200, (a 7.3% increase in FICA taxes payable) and the increase of the Qualified Plan Compensation Limit from $265,000 to $270,000.
 
Click below to download the 2017 Annual IRS Limitation Table
2017 Annual IRS Limitations
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The Emerging Leadership Challenge

Since 1997, Executive Compensation Concepts, Ltd. has had a primary focus within the independent school community. We have discovered that the “changing of the guard” (e.g., Head of School/Headmaster) leads to difficult challenges in attracting and retaining highly performing Heads of School.

Many independent schools face a serious recruiting challenge as members of their leadership team depart for various reasons (i.e. retirement of the baby boomer generation, involuntary or voluntary termination of heads, etc.). A school’s ability to attract, grow, and retain the leadership talent required to be successful has become more difficult as the talent pool dwindles. The current applicant pool for new headships consist of two-thirds first-time Heads (“Rising Stars”) with limited operational experience and one-third sitting Heads with multiple years of experience. In addition, in a 2012-2013 Study, NAIS states that 72% of current Head's of School are between ages 50 to 69, which is quite a staggering statistic. As this trend continues, search committees will be looking at first time candidates for a headship that may or may not have practical, demonstrated skills on the operational side of school leadership, in addition to a strong educational background.

During this period, ECC has continually commented that succession planning “is not just an event; but a well-crafted process” which leads to a successful appointment of an in-coming Head of School.

Historically, search firms primarily assist the school’s search committee in locating viable candidates and orchestrate the steps in presenting each potential candidate to the committee on a favorable basis, aiding in the selection. What has been missing however that is most, if not all, search firms fail to offer any service in the design of the total all-in compensation package or in preparing the offer to be presented to the final candidates?

Executive Compensation Concepts, Ltd. (“ECC”) has been quietly joining forces with many independent school search committees in the past few years to assist in the final steps of the search process in crafting the terms for the financial and employment offer. ECC announces a new initiative for 2016 and beyond - Compensation Planning for the in-coming Head of School/Headmaster, which involves:

(i) Establishing the financial guidelines (“Compensation Policy Statement”) in regards to the offer;

(ii) Preparing a market analysis of comparable schools’ (size, type, operating revenue and expenses and experience as Head of School) Total All-In Compensation Packages;

(iii) Preparing a sample executive offer of the employment agreement’s key provisions to the final candidate;

(iv) Illustrating the cash flow of the Total All-In Compensation Package during the term of the employment agreement to highlight the magnitude of the overall offer; and

(v) Preparing a compliance letter to the school, required by IRC section 4958, that the offer is both competitive and reasonable.


For more information or a quote for our services, please contact us at 410-561-5157 or 410-215-3879.

Critical Proposed Regulations for Nonqualified 457 Plans
The IRS has recently published extensive proposed regulations under IRS Code Section 457. This Code Section governs the nonqualified deferred compensation plans of Non-Profit Organizations. The regulations will require a review of all current nonqualified deferred compensation plans (including, for example, supplemental retirement plans, severance plans and deferred compensation provisions of employment or independent contractor agreements) of Non-Profit Organizations to ensure that the new rules do not cause negative tax treatment under those arrangements. 
 
The new regulations introduce new and significantly more liberal positions on certain 457 plan design issues than previously taken by the IRS.  The following are some of the highlights of the proposed regulations.
 
Non-Competes as Substantial Risks of Forfeiture
 The proposed regulations provide limited (but meaningful) conditions under which non-competes can constitute substantial risks of forfeiture delaying taxation under 457(f).  It is likely that this will create very significant planning opportunities for employers that wish to achieve tax deferral beyond termination of employment for classes of employees, with respect to which the employer has significant non-compete interests.  Prior IRS guidance generally had prohibited the use of non-competes as risks of forfeiture.
 
Voluntary Deferrals by Participants
 Although less than clear, it appears that the proposed regulations will reverse the IRS’s long-held position and will now permit voluntary deferrals of compensation into 457(f) plans in some cases, at least by participants who do not have “effective control” over the employer.  (Unanswered questions remain concerning this topic, but ECC will continue investigating.)
 
Short Term Deferral Exception
 The proposed regulations create an exemption from 457(f)’s taxation-on-vesting rules for arrangements that satisfy the short term deferral exception under Code Section 409A.
 
Extensions of Vesting Periods
 The proposed regulations create a rather complex rule that permits employers and 457(f) plan participants to extend, for at least two years, an approaching vesting/taxation date in certain limited circumstances.  (Prior IRS guidance has prohibited vesting/taxation date extensions.)
 
All Non-Profit Organizations should consider whether or not these new rules present them with opportunities to “upgrade” their Senior Leadership Team’s deferred compensation programs.  Please contact ECC at (410) 561-5157 and let us know if we can be of assistance in this regard.

Announcing a Newly Updated Comparability Process & Compliance Letter

 

ECC’s staff continually enhances the value-added experience for our clientele in order to provide the highest quality compliance services.

ECC recently engaged well-known lawyers, specializing in non-profit administration and compliance under IRC 4958 Intermediate Sanctions and the Rebuttable Presumption Process, in order to review and update ECC’s compliance approach on behalf of boards of trustees (Head of School Comparability Study and Report) and the related compliance letter of reasonableness required under the Internal Revenue Code section 4958 regulations.

With this in mind, the comparability compliance process and report, as well as the compliance letter of reasonableness, were updated. These enhancements consequently strengthened the previous guarantees under IRC Section 4958 – Intermediate Sanctions and the Rebuttable Presumption Process.

Currently, our comparability process and compliance letter leave no room for error in determining whether the Head of School’s total compensation is both reasonable and in compliance with 4958 regulations. Based on these changes, ECC currently provides the strongest guarantee in the market. As a result, in the event of an Internal Revenue Service audit, our clients are not asked to demonstrate to the IRS they are in the right; rather the IRS is required to prove that the school’s comparability study, report and compliance letter are insufficient.

ECC's process has never exposed any of our clients to an IRS audit!

How to properly file compensation on your IRS Form 990 - Schedule J

 

Tax season generally approaches faster than expected leaving tax-exempt organizations scrambling to prepare the Schedule J for Highly Compensated Employees.

 

For tax-exempt organizations on a calendar year recording compensation is more straightforward.  However, for those on a fiscal year the process is more complicated and is often prone to error (i.e. failure to record the appropriate total compensation components in the correct column). Reporting for a non-calendar year requires you to take parts from two different years and combine them to calculate the year-long compensation.

 

At ECC, we would like to make this process easier.  Please contact us and for a nominal fee, we will provide you with a break down the filing components in a sample Form 990 - Schedule J.  This will ensure that you are filing properly and allow for better transparency between you and the IRS.  We will also provide you with a Power Point presentation that shows all of the elements in each category to aid you in future filing.

Retirement Plan Contribution Limits for 2015 and 2016

 

Each year in October, the IRS releases the Retirement Plan Contributions for the following year. Below, you will find the updated numbers for 2016, as well as the numbers from last year, 2015.

Retirement Plan Contribution Limits for [...]
Microsoft Excel sheet [58.0 KB]

Contact Us Today!

To schedule an appointment or find out more about the services we offer, contact Hugh Mallon directly at 410-215-3879 or our staff at 410-561-5157.

 

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