It's Time For An Executive Benefits Tune-Up

? Have the stock options been appropriately valued and are they compliant with IRC 409A?

? Is the employer in compliance with new accounting standard FAS 123(R), assuring that the value of the stock option is being reported as it is granted?

? If the plans are incentive stock options, have the participants been advised of the alternative minimum tax effects of the plan?

? In light of all that has changed with stock options, have the plans been reviewed for effectiveness and appropriateness?

A lot has happened in the last few years with stock option plans, from 409A to new accounting standards to SEC disclosure requirements. For example, discounted stock options are no longer feasible because they will be treated as deferred compensation under 409A. It is important to review these plans, including the changed accounting affects on the employer's financial statements, to determine if they still fit with the objectives of the employer.

Split-dollar

? Is the company publicly held or otherwise under SEC jurisdiction? If so, has the company assured that its split-dollar plans are compliant with Sarbanes Oxley?

? If the employer has an existing split-dollar plan, has the plan been reviewed in light of the 2003 split-dollar regulations?

? Is the employer properly reporting the taxation of the plan to the executive, either as an economic benefit or loan interest?

? Has counsel reviewed the split-dollar agreement to determine if the plan is affected by IRC 409A?

In the last decade, the rules related to split-dollar have gone through extensive regulatory revision. The requirements are finally clear, but in many cases existing plans are now subject to taxation under entirely different tax regimes. Any existing split-dollar plans should be carefully reviewed to determine both compliance and appropriateness. Split-dollar plans can be effective and appropriate as an executive benefit, but all existing plans need review.

The reason for executive benefit plans is typically to help the employer recruit, retain, reward and retire key employees. The company can increase the perceived value of these plans by providing superior communication on plan options and opportunities. The executive can leverage the benefit of the plans by reviewing for timing options and coordination with other financial vehicles and plans.

Companies and their executives are perpetually busy, but 2008 is a key year to take time for a benefit review. Not all benefits need changing and not all benefits are affected. But, by asking the right questions, you can provide a thorough executive benefit tune-up.

Steve Parrish, JD, CLU, ChFC, RHU, is a national advanced solutions consultant with The Principal Financial Group, Des Moines, Iowa. You can e-mail him at