Phantom stock plan erisa

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that establishes minimum standards for pension plans in private industry and  Generally, a phantom stock plan is an agreement whereby a company grants If ERISA applies, the employer will owe fiduciary duties to all plan participants.

Qualified plans, such as 401 (k) programs, are subject to all of the rules and restrictions of ERISA. Nonqualified plans, including most phantom stock plans, are not. Thus, most phantom stock plans are exempt from the portions of ERISA pertaining to participation, vesting, funding and fiduciary responsibilities. Establishing standards of conduct for plan fiduciaries; and Providing for appropriate remedies and access to the federal courts. When designed as a top hat plan, phantom stock plans are exempt from Parts 2, 3 and 4 of Title I of ERISA pertaining to participation, vesting, funding and fiduciary responsibilities. Compliance with Employee Retirement Income Security Act of 1974 (ERISA) – Phantom stock plans are generally designed as “top hat” plans which are unfunded and maintained by the company for a select group of management or highly compensated employees. This exempts the plan from most of ERISA’s provisions. For these companies, a phantom stock plan may be an attractive alternative. Generally, a phantom stock plan is an agreement whereby a company grants (or sells) to certain employees a contract right to fictional shares of stock (“phantom stock”) and agrees to pay the employee the value of his or her vested shares at a future date upon the occurrence of specified events. Under what conditions might a phantom stock plan be considered a bonus plan instead of a nonqualified deferred compensation plan? The Department of Labor (“DOL”) establishes the regulations which define whether or not a program is a pension (and thereby subject to ERISA).

For example, companies can issue stock options to employees, provide At its core, a phantom equity plan simply involves a company promising to pay an employee then it could subject the company to considerable liabilities under ERISA.

Any shares of Phantom Stock subject to an Award which, for any reason, expires, is cancelled, is forfeited or is otherwise terminated without settlement as to such shares of Phantom Stock may again be subject to an Award granted under the Plan. No shares of Common Stock shall be issued pursuant to the Plan and payments made under the Plan, if at all, shall be made solely in cash. Most phantom stock plans are designed to either: Satisfy the requirements of a “top hat plan” which is subject to ERISA but exempt from many of ERISA’s burdensome requirements. Avoid ERISA coverage by limiting deferral opportunities. All phantom stock plans should be drafted to comply with, or be exempt from, Section 409A’s requirements. Learn more from the experts at Practical Law. Most phantom stock plans will be subject to ERISA (the Fed’s 1974 rules on pensions) and Internal Revenue Code Section 409A. Sorry. There are rules. Fail to know and follow them at your own peril. Don’t try this at home. Get advice. It’s risky to decide upon the best choices for a phantom stock plan without the guidance of someone who’s forth in the phantom stock plan. 4. “Top Hat” Status. The proposed plan would be what is commonly referred to as a “top hat” plan. “Top hat” plan status is important, because it exempts the plan from most of the onerous requirements under ERISA. • In order to be a “top hat” plan, the plan can only benefit a “select group of Companies should also be aware of some of the risks that phantom stock plans can pose. For example, depending on how the plan is structured, it might come under the umbrella of the Employee Retirement Income and Security Act of 1974. If ERISA applies, the employer will owe fiduciary duties to the participants of the plan. Phantom Stock Plans Two Basic Types • Full‐value plans – Pay a cash bonus equal to the value of the original shares plus the appreciation on those shares Example: Executive receives 100 shares of phantom stock valued at $10/share. If value at payment date is $20/share, executive Generally, a phantom equity plan grants rights to receive the value of the appreciation in a specified number of company shares. Phantom shares are typically stand-alone rights granted to executives and are not granted in tandem with stock options.

Compliance with Employee Retirement Income Security Act of 1974 (ERISA) – Phantom stock plans are generally designed as “top hat” plans which are unfunded and maintained by the company for a select group of management or highly compensated employees.

For example, companies can issue stock options to employees, provide At its core, a phantom equity plan simply involves a company promising to pay an employee then it could subject the company to considerable liabilities under ERISA. 17 Feb 2017 Phantom stock plans are generally quite flexible and can be tailored to each If ERISA applies, the employer will owe fiduciary duties to the  15 Oct 2013 Phantom stock plans can mitigate these risks. be free from the burdens of ERISA rules governing participation, vesting, funding and fiduciary 

A. A phantom stock plan is a deferred compensation plan that provides the employee an award measured by the value of the employer’s common stock. However, unlike actual stock, the award does not confer equity ownership in the company. In other words, there is no actual stock given to the employee.

Any shares of Phantom Stock subject to an Award which, for any reason, expires, is cancelled, is forfeited or is otherwise terminated without settlement as to such shares of Phantom Stock may again be subject to an Award granted under the Plan. No shares of Common Stock shall be issued pursuant to the Plan and payments made under the Plan, if at all, shall be made solely in cash. Most phantom stock plans are designed to either: Satisfy the requirements of a “top hat plan” which is subject to ERISA but exempt from many of ERISA’s burdensome requirements. Avoid ERISA coverage by limiting deferral opportunities. All phantom stock plans should be drafted to comply with, or be exempt from, Section 409A’s requirements. Learn more from the experts at Practical Law. Most phantom stock plans will be subject to ERISA (the Fed’s 1974 rules on pensions) and Internal Revenue Code Section 409A. Sorry. There are rules. Fail to know and follow them at your own peril. Don’t try this at home. Get advice. It’s risky to decide upon the best choices for a phantom stock plan without the guidance of someone who’s forth in the phantom stock plan. 4. “Top Hat” Status. The proposed plan would be what is commonly referred to as a “top hat” plan. “Top hat” plan status is important, because it exempts the plan from most of the onerous requirements under ERISA. • In order to be a “top hat” plan, the plan can only benefit a “select group of

26 Sep 2016 A phantom stock plan is one way for family-owned businesses to Security Act ( ERISA) and Section 409A of the Internal Revenue Code, 

Qualified plans, such as 401 (k) programs, are subject to all of the rules and restrictions of ERISA. Nonqualified plans, including most phantom stock plans, are not. Thus, most phantom stock plans are exempt from the portions of ERISA pertaining to participation, vesting, funding and fiduciary responsibilities. Establishing standards of conduct for plan fiduciaries; and Providing for appropriate remedies and access to the federal courts. When designed as a top hat plan, phantom stock plans are exempt from Parts 2, 3 and 4 of Title I of ERISA pertaining to participation, vesting, funding and fiduciary responsibilities.

Incentive compensation plans that include phantom stock units and stock of the tax code, rather than the Employee Retirement Income Security Act (ERISA). 14 Mar 2017 Appreciation Phantom Stock Option Full Value Performance Based? 4545 Statutory: ERISA Most phantom stock plans are exempt from the  13 Oct 2014 SARs are very similar to phantom stock, except that they allow participants Retirement Income Security Act of 1974 (ERISA), you should design your plan to Phantom stock and SAR plans serve as wonderful incentives to  14 Aug 2019 Like other forms of stock-based compensation plans, phantom stock be free from the burdens of ERISA rules governing participation, vesting,  We design and assist our clients in implementing various packages such as phantom stock plans, non-qualified deferred compensation plans, “rabbi” trust  For example, companies can issue stock options to employees, provide At its core, a phantom equity plan simply involves a company promising to pay an employee then it could subject the company to considerable liabilities under ERISA. 17 Feb 2017 Phantom stock plans are generally quite flexible and can be tailored to each If ERISA applies, the employer will owe fiduciary duties to the