The NASPP Blog

Monthly Archives: February 2011

February 24, 2011

Troublesome Taxes

Ah, 1969–the summer of love…and the birth of AMT. The Tax Reform Act of 1969 created a minimum tax designed to ensure that individuals with high incomes could not avoid paying federal income tax (thus, the concept of a minimum amount of tax that must be paid by high income filers). This was in response to a scandalous statement that 150 tax payers making over $100,000 paid no income tax. This minimum tax evolved into what is now the Alternative Minimum Tax. Although AMT receives regular bombardment on all sides, the revenue stream that AMT provides the federal government has made it prohibitive for anyone with the power to change the system to speak up and push for a solution (However, many politicians are perfectly happy to talk about the problem).

The Confusion

The fundamental differences between regular income tax and AMT are that AMT has only two tax brackets and that many exemptions and itemized deductions are not available under AMT. Because AMT is a parallel tax system, it’s difficult for many individuals to even determine if they are subject to AMT or not. In any given year, all tax payers theoretically need to consider whether they are subject to ordinary income tax or AMT. There is no one test to determine if you need to pay AMT; essentially, you must compute your taxes due under both systems and determine which is higher. A lot of middle income tax payers assume that their tax filing is so simple that surely they don’t need to worry about AMT. However, even if you have only personal exemptions and take the standard deduction, it is possible (extremely unlikely, but possible) to end up being subject to AMT. Fortunately, virtually all tax programs incorporate questions to help you determine whether or not you are subject to AMT and the IRS provides a handy little AMT Assistant that will help you determine if you should even bother.

ISOs and AMT

Incentive stock options create a special set of confusions and misunderstandings when it comes to AMT. Here are a few reasons why:

  • If an employee exercises an ISO and doesn’t sell shares in the same tax year, she or he needs to file Forms 6251 and 8801 for the year of exercise – regardless of whether or not AMT is due. Now that the IRS is being notified of ISO cash exercises courtesy of Form 3921, it’s especially important that your employees are aware of this.
  • If an employee exercises and sells ISOs in the same year, resulting in a disqualifying disposition, there is no AMT income from the ISO exercise (provided all the shares are sold) because you the preferential tax treatment on the exercise is eliminated. It’s important that your employees are aware that Form 3921 does not take any disposition into account.
  • ISOs fall into a special category of AMT income that is eligible for a tax credit in subsequent year. However, in order to calculate–or even qualify–for the credit, a tax payer must file Forms 6251 and 8801 every year until the credit can be claimed. Claiming an AMT credit is particularly tricky and a fabulous reason to rely on a tax professional, which brings up the topic of tax and financial planning resources for your employees. Calculating the credit is difficult, too, because it is limited to AMT income that is in excess of regular income. Consider partnering with your broker(s) or other service provider to help put employees in contact with tax professionals.
  • Disqualifying dispositions that occur in a year subsequent to exercise are a mess because the employee could end up with AMT in the year of the exercise and ordinary income in the year of the sale. However, that ordinary income could result in a favorable AMT adjustment when calculating AMT in the subsequent year.

Find out more about ISOs on the NASPP’s Incentive Stock Options portal. Also, the NASPP’s fabulous and freshly updated Stock Plan Fundamentals course starts in April. The entire second session (of six) is dedicated to the taxation of equity compensation, including ISOs.


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February 22, 2011

Time to File for an Extension

I understand that Forms 3921 and 3922 still are not available from the IRS, so, in today’s blog, I provide instructions for requesting an extension of the filing deadline.

Note: I was not able to personally verify the availability (or lack thereof) of the forms prior to posting this blog entry because, of course, the IRS was closed yesterday for Presidents’ Day.  Here at the NASPP, we were working–just one more way in which the NASPP is better than the IRS (see NASPP Discussion Forum Topic #6788 for more proof that the NASPP provides better service than the IRS).

Time is Running Out
A week or so ago, when I placed my order for one copy each of Forms 3921 and 3922, I was told that it takes five to seven days to receive the forms. Thus, at this point, it seems unlikely that the paper forms will arrive in time for the filing deadline on February 28. Any company that is planning on filing on paper should probably go ahead and file for a 30-day extension.

How to Request an Extension

You can file Form 8809 to request a 30-day extension of the filing deadline. If you file Form 8809 electronically–which is easy peasy; the IRS provides an online fill-in form for this purpose–the extension is granted automatically, no questions asked. You don’t even have to state a reason for needing the extension (I know, I know, you really want to explain that the reason you need the extension is that the IRS HASN’T MADE THE FORMS AVAILABLE). You can file for the extension online, even though you will be filing the returns on paper. So long as you submit your extension request by February 28, there are no penalties for filing for the extension.

To file Form 8809 electronically:

  1. Go to
  2. Log in. If you don’t have a login, you can easily create one for yourself. Follow the instructions provided.
  3. Click “Main Menu” (in the left column). This will take you to the FIRE system main menu.
  4. Click “Extension of Time Request” (in the left column). This will take you to the Extension of Time Request page.
  5. Select “Fill-In Extension Form.” This takes you to a short explanation of the request form.
  6. Read the explanation. Wonder to yourself why the IRS has to be so wordy all the time. Click the Continue button. This will take you to the online extension request form.
  7. Complete the form and click the Submit button. You should get an online confirmation that your extension has been approved. (I say “should” because I didn’t actually click the Submit button myself when I tested this. The NASPP doesn’t have any Forms 3921 and 3922 to file so it didn’t seem very smart to confuse the IRS by filing for an extension on forms we aren’t filing. I can’t imagine trying to explain that to an IRS auditor.)
  8. Print the confirmation for your records.

Once your extension request is approved, you’ll have until March 30 to file the returns. Hopefully the forms will be available long before then. If they are not, however, you can file for another extension. That extension isn’t granted automatically and you have to give a reason for the request, but I can’t really imagine a better reason than that the IRS hasn’t yet made the forms available.

Electronic Filers Don’t Need an Extension

If you are filing Forms 3921 or 3922 electronically, you don’t need an extension because: 1) you already have until March 31 to submit the filing and 2) you don’t need the actual forms from the IRS. You are submitting an ASCII text file via the FIRE system. If you have your file ready to go, you could submit it today, even though the official forms aren’t available yet.

More Information???

We are trying to get more information from the IRS about when the forms will be available. If we find out anything, you can be sure we’ll let our members know. Follow the NASPP on Twitter or Facebook to make sure you don’t miss any announcements we make about the forms.

Update: I spoke to two IRS representatives this morning, February 22.  Forms 3921 and 3922 are still not available and they did not know when they will be available. They encouraged companies to request a filing date extension (as I’ve described in this blog) or to file electronically.

Last Chance to Submit Speaking Proposals for the NASPP Conference
The IRS isn’t the only one with a February 28 deadline.  All speaking proposals for the 19th Annual NASPP Conference must be submitted by February 28. (And unlike the IRS, the NASPP won’t grant an automatic 30-day extension, no matter how nicely you ask–you can chalk one up for the IRS, but I still think the NASPP is better.) 

If you missed the big announcement last week, the NASPP Conference will be held from November 1-4 in San Francisco. Look for information on registering for the Conference soon.

Last Chance for the Early-Bird Rate for the Online Fundamentals
This is also the last week to qualify for the early-bird rate on the NASPP’s acclaimed online program, “Stock Plan Fundamentals.” This multi-webcast course covers the regulatory framework and administrative best practices that apply to stock compensation. It’s a great program for anyone new to the industry or anyone preparing for the CEP exam. Register by February 25 for early-bird savings.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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February 17, 2011

2011: Fired Up for the 19th Annual NASPP Conference!

If you follow the NASPP on Twitter or Facebook, then you already know when and where the NASPP’s 19th Annual Conference will be held!

As you know, the window for submitting speaking proposals for the Conference is open and I’m already excited. People are getting really creative this year and I can’t wait to see what will get chosen! Don’t worry if you’re still working through the details of your submissions; we won’t start the difficult selection process until after the window closes on February 28th. Also remember that one is never enough. Each company can submit up to three proposals–hedge your bets and make sure your company maxes out the limit. (Remember to communicate with your other departments so you don’t accidently go over three.)

Around this time of year, I get emails from NASPP members wanting to get the inside scoop on what presentation topics are most likely to get chosen. Honestly, the inside scoop is that there is no inside scoop. Our proposal submission site has a wealth of suggestions that will help you get on the list of speakers for the Conference this year. However, these are my personal top three tips:

Tip #1: Fly Low

Regardless of your topic, we like to see presentations that will give us specific practical guidance and in-depth coverage of relevant areas. Case studies make fantastic illustrations, especially if your panel includes more than one company with different experiences on the same issue.

Tip #2: Diversify

It works for investing and it works for a phenomenal presentation. If you want to cover a topic thoroughly, get at it from multiple viewpoints. We are particularly fond of panels that include more than one firm because of the different perspectives that can be offered. We also specifically give preference to submissions that include an issuer company (or two).

Tip #3: Turn Up the Heat

It goes without saying, but I’ll do it anyway. The NASPP loves hot topics! We want our Conference attendees to get exactly what they are looking for. We have a great list on our proposal submission site, but it’s by no means exhaustive. Don’t be shy about perusing the NASPP Discussion Forum to see what issues are buzzing there or polling your peers to find out what they are struggling with right now.

There are, however, some subtleties about the selection process. Many topics are so in demand that we receive multiple submissions with different ideas for covering them. Every year, we do see equally irresistible proposals for an essential topic. There are a few tiny things that could give you that special edge: have clever title, provide detailed topic points, and include a description of what additional materials you’ll be providing. Be flexible, too, because sometimes we may ask you to join forces with another panel to create a hybrid that offers the best of both.

Also, don’t be afraid of a topic that isn’t shiny and new. Some topics like plan administration or tax withholding and reporting never go out of fashion because they never cease to be a major focus for equity compensation professionals. If you have an innovative approach to an old challenge, we want to know!

Proposal Assistance Program

It’s cutting it close, but it’s still not too late to qualify for the Proposal Assistance Program for this year’s Conference. If you are planning on exhibiting this year, reserve your booths now and you can participate in this invaluable program before the proposal submission window closes on February 28th. Through this program, you’ll receive personal feedback on how to improve your speaking proposals for the Conference, giving you a clear edge over your competition.


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February 15, 2011

Speedier Forms 3

In addition to the various changes we know are coming under the Dodd-Frank Act–e.g., CEO to median employee pay ratio, disclosures of hedging policies, expanded clawback requirements, expanded pay-for-performance disclosures, Say-on-Pay (wait, that’s already here)–this week, I blog about a potential change you might not have been aware of: less time to file Forms 3.

Form 3 Deadline
In a little-known provision (at least to me), the Dodd-Frank Act amended Section 16(a) to authorize the SEC to shorten the deadline for filing Forms 3. The amendment isn’t effective until July and then some SEC rulemaking will be necessary to effect the change, but, since the SEC requested the authority to do this, it seems likely that they will follow through on it.

Currently, when someone becomes an insider at a reporting company, a Form 3 must be filed within ten days. Alan Dye, of and Hogan Lovells, speculates that the SEC will change the deadline to be more in line that of Form 4–e.g., two business days.

As things stand now, most new officers and directors receive a grant upon assuming their new role that must be reported on Form 4 within two business days anyway, even if the Form 3 is not due for ten days (and, in this circumstance, the SEC encourages insiders to file the Form 3 concurrently with the Form 4). It does seem to me to create a fundamental unbalance in the universe to file a Form 4 before filing a Form 3 for an insider–now, presumably, balance will be restored (at least, that’s what Alan thinks–and my money’s on him–but this is all speculation, we don’t actually know what the new Form 3 deadline will be).

A two-day deadline on filing Forms 3 will make it even more critical to be on top of obtaining EDGAR codes for new insiders.

Thanks to Tami Bohm of Radian Group (and member of the NASPP Executive Advisory Committee) for bringing this development to my attention.

A More Social NASPP
The NASPP is networking socially: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on–it’s a great way to keep up with all the content we have on the website.

Online Fundamentals–Early-Bird Ends February 25
The NASPP’s acclaimed online program, “Stock Plan Fundamentals,” begins on April 14. This multi-webcast course covers the regulatory framework and administrative best practices that apply to stock compensation. It’s a great program for anyone new to the industry or anyone preparing for the CEP exam. Register by February 25 for early-bird savings.

Submit Speaking Proposals for the NASPP Conference by February 28
The NASPP is currently accepting speaking proposals for 19th Annual NASPP Conference.  Submit your proposal by February 28. 

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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February 10, 2011

Blind Spots

A policy is only as solid as its exceptions. You may have a well-defined plan or policy for your company’s current situation that has bare spots that may not stand the test of time–and unusual circumstances. It’s difficult to cover all your bases when you are creating a new policy or plan, but it’s even more difficult when you jump into managing an existing plan under inherited policies.

The problem is that it is rare that a stock plan manager has time to pick through every piece of every plan document and policy and play out every scenario to determine if there are cracks that need to be exposed. This is where experience really counts; whether it is your own personal experience or experience you picked up second hand by listening to the holes other stock plan administrators have encountered. Whenever you are networking, attending a presentation, or perusing a discussion forum and you hear a new predicament, run–don’t walk–back to your desk and check to see if your company could potentially run into the same issue.

Just to give you a taste, here are three problems to think about:

Insider Trading Policy

Generally speaking, insider trading policies restrict the transactions of individuals deemed to be in possession of insider information. They help to protect both the company and the individuals by preventing transactions that would either be or appear to be insider trading. However, there are a couple places where ambiguity could trip you up. For example, if your insider policy doesn’t detail what constitutes a transaction, you could find yourself up against (or in the middle of) a blackout period scrambling to determine the correct course of action. Cash exercises and trading shares to cover tax liability on restricted stock vests are the most common sources of contention. Even if you’ve covered yourself by getting all your insiders into Rule 10b5-1 trading plans, there could still be an issue when someone not normally considered to be an insider is marked for a particular blackout period because she or he is either recently promoted or currently in the middle of a project that provides access to nonpublic information. If that same person has, for example, a restricted stock vest during the company blackout window, you could have a situation on your hands.

Fair Market Value

The fair market value for both grants and transactions can be pretty much any reasonable definition, which means that companies may set fair market value differently. Non-market days can be blind spot when it comes to restricted stock vests. Another tricky situation may arise if your FMV is defined in such a way that it is possible for someone to exercise an underwater option. For example, if your company uses the prior day’s closing price as the FMV for option exercises, an employee could exercise barely-in-the-money options and end up with an exercise price that is higher than the defined FMV.


Your company can treat all terminations equally, but most companies do not. Voluntary, involuntary, for cause, death, disability, and retirement are all on the list of potentially unique termination reasons with varying impact to equity compensation. Of course, you want to have each reason clearly defined, but the blind spot could be what happens if the circumstance combines more than one reason. For example, what if an employee leaves the company and subsequently passes away during the post-termination grace period?

Take Charge

For larger issues regarding plan design and policy, there are a number of resources on the NASPP site to provide essential guidance. Our April 2010 webcast, “25 Ways to Improve Stock Plan Documents,” details more than 25 plan design issues that you need to be aware of and we have an entire portal dedicated to plan design with a host of resources under multiple topics.

There were also several fantastic sessions at the 18th Annual NASPP Conference last year like “Night of the Living Dead: Equity Compensation Horror Stories–The Sequel!” and “Key Fixes for Today’s Stock Plans: Clawbacks, Double-Triggers, and Hold-through-Retirement” that you haven’t missed your opportunity to experience–you can catch up by ordering the audio and materials today. I can’t wait to see what plan design treasures are in store for us this year! If you have a fabulous idea for a session at this year’s Conference, we are accepting proposals through February 28th.

Finally, don’t overlook your opportunities to learn from others. The NASPP has over 30 local chapters planning regular meetings. Making sure you attend your chapter’s meetings gives you access not only to timely topics and great speakers, it also gives you the networking opportunity to discover which issues are most important to your peers and how they are dealing with them. We also have an active Discussion Forum where you can browse, search, and even subscribe to the topics that matter most to you.


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February 9, 2011

Decisions Have Been Made

When the NASPP conducted our quick survey on Section 6039 back in October, there were a lot of “undecided” responses. So we conducted another survey last month. The results are in and decisions have been made.

Filing Section 6039 Returns with the IRS

Electronic filing is the clear winner here, with 78% of respondents filing the returns for ISOs electronically and a landslide 90% filing electronically for their ESPP transactions.  Surprisingly, 5% of respondents are planning to file ESPP returns on paper; they must be from very small companies or have very low participation rates in their ESPP to manage this.  I can’t imagine trying to file the returns on paper–my handwriting would never pass muster with the IRS and I have no idea where to scare up a typewriter these days.

In terms of getting the job done, the trend is towards outsourcing.  Only 23% of respondents are preparing and filing in-house for ESPP returns; more–41%–are handling the job in-house for ISOs.  When we asked this question back in October, 29% were undecided, but now that the deadline looms near, almost everyone has made a decision: only 2% remain undecided about outsourcing for ISO returns and only 5% are undecided for ESPP returns.

Participant Statements

More companies than I expected were planning on distributing copies of the actual Forms 3921 and 3922 to their employees:  32% of respondents for ISOs and 26% of respondents for ESPPs.  Of course, as I’m sure all of these folks know, the IRS did not make the forms available in time for this, so these folks most likely ended up distributing substitute statements (unless they requested an extension from the IRS).  

Most of the rest of the respondents distributed substitute statements that aggregated multiple transactions on one page:  58% of respondents for ISOs and 64% of respondents for ESPPs. 

Back in October, 50% of respondents were on the fence about including an explanatory letter with the statements. I’m pleased to see that the majority decided to go with the more-information-rather-than-less approach:  86% of respondents ended up including an explanatory letter with ISO statements and 88% did so for ESPP statements.

Decisions went the opposite way on distributing the statements electronically.  24% of respondents were considering this back in October, but the majority (90% for ISO statements, and 87% for ESPPs) ended up distributing the statements on paper.  Not surprising, given the onerous requirements for electronic distribution.  It will be interesting to see how many companies move towards electronic distribution in the next few years.

More Information

For everything you need to know about Section 6039, check out the NASPP’s Section 6039 Portal

A More Social NASPP
The NASPP is networking socially: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on–it’s a great way to keep up with all the content we have on the website.

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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February 3, 2011

The Investor Relationship

I don’t spend a lot of time talking about investor relations because it generally isn’t something that stock plan administrators are closely involved with. But, I do spend a lot of time talking about and thinking about ways to get creative with employee communications. I ran across an article, Communicating Executive Pay Information on the Web, that revealed how closely related these two topics can be. Of course, this should come as no surprise to me because employees receiving equity compensation are investors.

In this article, author Dominic Jones makes the point that companies will be putting all their efforts into “trying to spruce up their mandatory proxy statements” in an effort to comply with Say on Pay regulations when the reality is that most investors won’t even read the key pieces of information that the proxy contains. This is very much like the efforts of stock plan administrators who have to spend so much time and energy ensuring that communications meet regulatory requirements that there doesn’t feel like there’s any left over to actually communicate with employees.


Jones points out that the compensation disclosures are not only difficult to read, they are also difficult for investors to access. Stock plan management has the same issue with grant agreements, which are lengthy and filled with dense text. Even online grant agreements that require employees to open and/or actually scroll through often don’t get read at all. The fact that grant agreements really do need to contain all the necessary legal references and disclaimers doesn’t preclude alternate delivery methods for the key information contained in them–and the same goes for tax communications.

Be the First “Result” in Employee Searches

The article also talks about where most investors will turn to get information on executive compensation (since they apparently won’t be reading proxy statements). According to Jones, most shareholders will be soaking up information from other sources like the media (or social media) and their friends. Well, the same thing happens with employees. Stock plan administrators need to compete with other sources of information like media, co-workers, personal advisors. To be the source that employees turn to first, information on equity compensation must be both visible and accessible. You don’t want your employees to have to go digging for essential information on their equity compensation. Issues like taxation can get buried layers down into the company intranet, or lost in a stack of other communications.


Being accessible isn’t just about having open office hours, a standard email for employees to use, or a special page dedicated to top issues. Accessibility means reaching employees through formats they are most likely to notice. In the world of investor relations, Jones suggests using videos, surveys, and social media. Not bad advice for stock plan administrators either. (By the way, my esteemed colleague at, Broc Romanek, gets major kudos from Jones on his explanation of shareholder compensation surveys.)

Section 6039 Webcast

Today we have the NASPP’s next installment in our “Ask the Experts” series, Last Chance to Ask About Section 6039 Returns (4:00 – 5:30 pm, eastern time). We received a resounding number of technical and administrative questions for this webcast; if you’ve got any loose ends on Section 6039 compliance, this is the session you cannot miss!


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February 1, 2011

Final Say-on-Pay Regs

Last Tuesday, January 25, the SEC issued final regulations on Say-on-Pay votes. For the most part, the SEC adopted the proposed regulations, with only a few minor adjustments.

As expected the regulations require three non-binding votes:

  • Say-on-Pay: Shareholders must be permitted to vote on executive compensation every one, two, or three years. The first vote must be held at the company’s first annual meeting on or after January 21, 2011. Shareholders will be voting on the compensation paid to executives as disclosed in the proxy statement.
  • Say-on-Pay-Frequency: Shareholders must also be permitted to vote on how frequently the company holds a Say-on-Pay vote. This vote must occur at least every six years, with the first vote occurring at the company’s first annual meeting on or after January 21, 2011.
  • Say-on-Parachutes: Shareholders must be permitted to vote on golden parachute arrangements. If these arrangements have not previously been voted on, this vote must be included in the proxy statement relating to the merger (or similar transaction) for which the compensation will be paid. This requirement applies to filings on or after April 25, 2011.

McGuireWoods provides a good summary of the final regulations; we’ll be posting an alert with links to additional memos as we receive them.

Other Dodd-Frank Rulemaking Delayed
As Broc Romanek mentioned in his blog (“Four of Corp Fin’s Dodd-Frank Rulemakings Delayed,” January 27, 2011), the SEC has pushed back its estimate of when proposed rules will be issued for the following projects:

  • Pay-for-performance disclosure (how compensation is related to financial performance)
  • Pay ratios (ratio of CEO pay to median employee pay)
  • Clawback policies (clawback of officers’ compensation upon financial restatement)
  • Hedging policies (whether the company has a policy regarding the ability of directors and employees to hedge)

Based on the SEC’s revised timeline for implementing the Dodd-Frank Act–the proposed rules now aren’t expected until August, at the earliest, and possibly as late as December–Broc speculates that rules for these projects may not be finalized in time for the 2012 proxy season. 

A More Social NASPP
The NASPP has boarded the social networking train: you can now follow us on Twitter or like us on Facebook. We’ll be posting announcements whenever we post new content on–it’s a great way to keep up with all the content we have on the website.

NASPP Members Eligible for Discount on CEP Exam
If you’ve been thinking about enrolling for the Certified Equity Professional exam, now is the time to do it. Because the NASPP serves on the CEP Institute Advisory Board, we are able to offer NASPP members a $200 discount on the June 4, 2011 exam.*

The CEP program is the certification standard for the equity compensation industry, comprised of a three-level, self-study program in the technical regulatory issues affecting equity compensation.  

Visit the CEPI website for more information on the program. To take advantage of the NASPP member discount, contact the CEPI at (408) 554-2187.  Don’t wait; registration closes on April 22.

* The Fine Print: Eligible registrations include new Level 1, Level 2 or Level 3 registrations for individuals who are involved in administering or managing their own company’s equity programs. Deferrals and re-tests are not eligible for a discount. Individuals already registered are not eligible for a retroactive discount. Candidates from service providers do not qualify. Questions regarding eligibility can be directed to the CEPI at (408) 554-2187. 

NASPP “To Do” List
We have so much going on here at the NASPP that it can be hard to keep track of it all, so I keep an ongoing “to do” list for you here in my blog. 

– Barbara

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