ASAE sent a letter to the Treasury Department earlier this week asking the department to mitigate the impact of a 21% excise tax on certain tax-exempt executive compensation, enacted as part of last year’s Tax Cuts and Jobs Act (TCJA).
As ASAE explained in a letter to members, the tax might appear to impact only a select number of tax-exempt entities with highly-compensated employees, but it threatens to impact a much broader segment of the tax-exempt sector. This is because compensation subject to the new tax includes not just base salary but the cash value of most benefits, including those that have vested but haven’t been received, retirement benefits, and certain retention payments contingent upon service.
“Unless Treasury acts to limit the exposure of tax-exempt organizations subject to this excise tax, many organizations currently unaware of their potential liability could find their reserves and overall fiscal health greatly compromised,” ASAE President and CEO John Graham, FASAE, CAE, said in the member letter.
In the Treasury letter, ASAE urges Treasury to establish a grandfather rule for tax-exempt entities that mirrors a grandfather clause included in last year’s tax law for executive compensation contracts of publicly-held corporations. The grandfather rule would apply to contracts in effect prior to Nov. 3, 2017.
Absent Treasury exercising its regulatory authority to establish a grandfather rule, ASAE suggests Treasury issue guidance permitting an allocation of benefit amounts over the life of a 457(f) deferred compensation plan. ASAE is concerned about the tax treatment of amounts payable under Section 457(f) plans in which benefits vest all at once after a period of years.
ASAE is also asking Treasury to issue guidance confirming that Section 457(f) plan benefits that vested before Jan. 1, 2018 when the tax law took effect are exempt from the excise tax, even if the benefits are paid on or after that effective date.
ASAE has urged its members to weigh in with Treasury on this issue and also with Senate leadership. If you have questions about this issue, please contact ASAE’s Public Policy team at firstname.lastname@example.org.