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What is the distinction between a private employement agreement and an


Guest Mr. Joseph

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Guest Mr. Joseph

Under what circumstance can an agreement between a privately held business and one key manager be considered to be subject to ERISA? Even if the document deals extensively with retirement and benefit matters, it is still a contract with one person who is a manager. There are other employees of the business and not one of them is subject to any similar type of agreement. It seems to me that the document between the manager and the company is more in the nature of an employement agreement than a retirement "plan". Can anyone cite any key authorities on the matter?

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BTW, it is also clear that such arrangements are covered by the accounting requirements of SFAS Nos. 87 and 106.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Actually, a deferred compensation arrangement for a single individual can likely be accounted for under APB 12 rather than FAS 87.

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But, APB 12 was written prior to SFAS 87. It only says that an individual agreement should be accrued for, even if it is a pension plan. That is in opposition to the qualified pension plan approach of expensing the cash flow contribution. There typically wouldn't be a cash flow in a deferred compensation agreement.

Now that we have specific rules for accruing under SFAS 87, it is my interpretation that it must be followed for guidance on how to accrue under APB 12.

Note that the connection between APB 12 and SFAS 87 are discussed in Q&A 3 of the Implementation Guidelines. It basically says that if the individual agreement does not meet the definition of a pension plan, that you can follow APB 12 instead of SFAS 87.

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Guest BobParks

I am confused by this thread and would appreciate someone blowing away my fog.

This is a privately held company. Why would these FASB etc. pronouncements matter? I have been under the impression that with a privately held company the accounting for NQDC arrangements was anything the owners, their CPA and banker found acceptable.

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Well, sort of.

Accountants/auditors are bound by their own code of practice to use generally accepted accounting principles. With respect to publicly-traded companies, the SEC has stated (I think that is the proper term) that GAAP includes procedures issued by the Financial Accounting Standards Board.

Other than that, perhaps someone else can tell us if the AICPA has any rules/guidelines about this.

I had an example a few years ago of a private company that did not use SFAS No. 87 accounting for its DB plan. This company was considering going public. As part of that, they were informed (by auditor, I think) that they needed to adopt SFAS No. 87. So, they did, with an effective date that was retroactive about 4 years, thus giving potential investors and/or lenders some current and historical information that was on par with other companies.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Guest Howard Thomas

If a CPA prepares a financial statement on your private company for a buyer, lender, etc. it must conform to GAAP. To omit a material liability (as defined by GAAP) approaches fraud.

BTW, CFAS 106 significantly ammends APB 12 such that required recognition is similar to CFAS 87.

So the owners can do whatever they want, only as long as they don't show the numbers to anyone.

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Iteresting as it was, I think that we got away from the original question.

ERISA does not deal with retirement plans only and the term benefit matters is very broad. It also does not matter if it only pertains to 1 person out of all the employees.

Some cases that illustrate this were reported recently by the EBIA.

For example:

A severance payplan protecting against corporate change of control in Bowles v. Quantum Chemical.

An individual agreement to pay money and life insurance after retirement for a CFO in Nelson v. Jones & Brown, Inc.

It seems that if it a promise to deliver something at a future time to an employee is becoming enough to make it governed by ERISA.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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