The NASPP Blog

Monthly Archives: September 2015

September 30, 2015

NASPP To Do List

Pinball and ASC 718
I recently had an opportunity to visit the Pacific Pinball Museum in Alameda, CA. (BTW, way fun, if you ever happen to be in Alameda with some kids you need to amuse.)  And what should I be surprised to discover there? That’s right, a Monte Carlo simulation in action (video below)!  Just add some stock prices to those bumpers, pull the ball pin a couple of hundred thousand times (as many plays as you can manage for just $15 a day, $7.50 if you make your kid do it), and you’ve got yourself a Monte Carlo simulation on the cheap.

Want to know more about how the Monte Carlo simulation works?  Don’t miss the session “Tour de Monte Carlo: Bringing Clarity to the ‘Black Box’” at the 23rd Annual NASPP Conference.

Check out my video:

NASPP To Do List
Here’s your NASPP To Do List for the week:

– Barbara

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September 29, 2015

ESPPs and 401(k) Plans

I often encounter confusion over the difference between 401(k) plans and ESPPs, as well as the misperception that these two plans don’t mix: employees should participate in one but not both. The truth is that participating in both plans can be great for employees. Moreover, recent research from Fidelity shows that offering an ESPP can enhance your 401(k)

Two Great Plans that Go Great Together

A 401(k) is a great tool to save for retirement: employees invest their own money on a tax-exempt basis (except for FICA), the company may offer a match as an incentive to participate, and, in many cases, employees are able to hold their plan assets in a variety of diversified investments.

With an ESPP, employees also invest their own money in the plan, but on a post-tax basis.  Instead of a match, most plans offer a discount. The ESPP is not a diversified investment (employees must sell their stock and pay tax on it to diversify) and, although employees can certainly hold their stock as along as they want, they are not incented to hold until they retire, as is the case with a 401(k).

Another difference between these two plans: the maximum contribution to a 401(k) is increased periodically for inflation, whereas, as far as I can tell, the $25,000 limit under Section 423 has not been increased since the section of the tax code was enacted.

A 401(k) is a great tool to save for retirement; an ESPP is a great way to provide employees with additional earnings that are more liquid than their 401(k) holdings and can be used for to meet employees’ other financial needs. In addition, an ESPP allows employees to participate in the company’s success; in a 401(k), employees’ assets are often invested in mutual funds or other alternatives that aren’t related to the company.

ESPPs and 401(k) Loans

Recently, Fidelity compared loan rates against 401(k) plans for companies that offer an ESPP and those that don’t.  As highlighted in a recent article in Plansponsor (“ESPPs Can Help Insulate Retirement Savings,” June 12, 2015) and Fidelity’s own announcement (“How Can Companies Help Employees Avoid 401(K) Loans? Offer an Employee Stock Plan, According to Fidelity Survey“), the results were enlightening:

  • 401(k) loan rates were lower across the board when companies offer an ESPP, regardless of company size.
  • Employees with access to both an ESPP and a 401(k) tend to borrow a smaller amount from their 401(k), and had a lower outstanding loan amount.
  • Employees at large companies (more than 10,000 employees) with both an ESPP and 401(k) borrowed an average of $2,000 less than employees with only a 401(k), and had an average outstanding loan balance of $3,000 less than employees without access to an ESPP.
  • The difference was especially notable among small companies (fewer than 500 employees), where 9% of workers took out new 401(k) loans when an ESPP was also available, versus 14% at companies that don’t offer an ESPP.
  • The outstanding loan rate at small companies was also significantly lower, with only 14% of ESPP/401(k) workers having an outstanding 401(k) loan balance, compared with 23% of employees at 401(k)-only companies.

Want to hear more about how great ESPPs are? Attend the session “The New Role of Employee Stock Purchase Plans” at the 23rd Annual NASPP Conference.

– Barbara


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September 24, 2015

IRS Equity Compensation Audit Techniques

In case you were wondering (in your spare time), the IRS now has a techniques guide for auditing equity compensation. The “guide” is actually an instruction to internal IRS auditors on how to evaluate equity compensation during an “examination” (fancy word for “audit”). The guide, published in August 2015, is available on the IRS web site. I’ll try to summarize some of the more interesting points in today’s blog.

The Angles of Audit

Before I dive into what the guide says, I want to cover a thought that came to me as I was reading the guide. Stock Plan Administrators and their vendors are focused on tax compliance relative to the company’s corporate tax obligations (reporting, withholding, etc.). However, it’s important to remember that as compliant as we may be from a issuer standpoint, there is still audit exposure potential from the individual angle of tax compliance. An employee may get audited, even if the company is not being audited. The company’s documentation may be requested from the IRS as part of that audit. It’s important that issuers are aware that there are a variety of audit angles that could attract attention to their equity compensation record-keeping and disclosures at any given time, and the IRS guide seems to support that thought – providing detailed information on the types of transactions and potential tax issues that could arise. With that detail comes guidance on how to source documents attached to equity compensation. According to a blog dedicated to explaining the guide by Porter Wright Morris & Arthur LLP,

“Interestingly, the Guide devotes a fair amount of detail to explaining where auditors may find these documents, encouraging them to review Securities and Exchange Commission (“SEC”) filings as well as internal documents. As such, the Guide serves as an important reminder to employers to be mindful that the IRS (or other third parties) someday could seek to review their corporate documents. ”

Documents Galore

Let’s cut to the chase. Where are auditors instructed to look?

  • SEC documents – This is an obvious one, but it’s where the IRS recommends their auditors start. Disclosures such as the 10K (Form 10-K), proxy statement (DEF 14A) and Section 16 reports of changes in beneficial ownership (Form 4) are places to identify types of plans and awards, as well as detailed compensation data for named executive officers and directors. The IRS recommends comparing data from these disclosures to individual Form W-2s and 1099-MISCs to verify proper tax withholding and reporting. If discrepancies surface, the IRS recommends expanding the audit (yikes).
  • Internal Documents – Types of internal documents subject to scrutiny include employment contracts, and meeting minutes from Board of Director and Compensation Committee meetings.


The Porter et al blog summarized this into some key awareness factors for employers:

“Employers should be aware of these instructions. Often times, it is easy for someone to prepare internal documents using jargon or short-hand that is familiar among people at the company but that may be difficult to explain to a third party or worse could be misleading. The Guide demonstrates that internal documents may not be restricted to internal personnel. Instead, the IRS very well could review these internal documents. As such, employees and advisers who prepare these documents should be mindful of both the information contained in the documents and how they present that information.”


When preparing documentation or disclosures (including supporting documents for those disclosures), it’s good to look at the process as if a third party will eventually come in and evaluate the information. The Porter blog made a great point – often times records are maintained in manner that internal parties may easily understand, or there’s someone on hand who can “interpret” that scrawl made by a board member. However, once that information is subject to review by an auditor, questions can arise. Companies should be aware of the IRS audit instructions relatives to equity compensation and maintain their records in a way that will make it easy to explain if audited.



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September 23, 2015

NASPP To Do List

New Survey Data
We’ve posted three new surveys from Ayco:

NASPP To Do List
Here’s your NASPP To Do List for the week:


September 22, 2015

Top Trends in Global Stock Plans

We recently posted the executive summary to the NASPP and PwC 2015 Global Equity Incentives Survey and, later today, we will be presenting highlights of the results in our webcast, “Top Trends in Equity Plans for International Employees.”  For today’s blog entry, I highlight five findings that I think are significant:

Globalization Continues:  Back when we did the 2012 survey, 20% of respondents said they expected to increase global participation in their stock plan and this trend held steady in 2015, with 19% again expecting to increase participation.  In addition 77% of respondents said they expect global participation to remain the same.  That leaves only a very small percentage of companies that expect to pull back their global stock plans.

Compliance Reviews Are More Routine:  The percentage of respondents who said they conduct annual compliance reviews of their global stock plans increased to 43%, up from 34% in 2012.  At the same time, respondents conducting only sporadic reviews dropped to 40%, down from 45%.  It can be risky to wait until you hear about a regulatory change to conduct a compliance review; annual reviews help ensure that you know when the laws impacting your global stock plan have changed.

UK Takes the Lead in Challenging Tax Compliance:  We asked respondents to indicate which countries they found to be challenging in terms of tax compliance. The UK was first, with 46% of the votes, up from 36%  (third place) in 2012.  China, however, is hanging in there at second place with 42% of the votes (China was in first place in 2012). France dropped to third place, with 26% of the votes (down from second place and 38% of the votes in 2012).

Mobility Compliance Up:  The percentage of respondents tracking mobile employees continues to increase:  87% of respondents track formal assignees (up from 80% in 2012), 62% of respondents track mobile employees who aren’t part of an assignee program (up from 60% in 2012), and a surprising 27% track business travelers (up from 18% in 2012). But the tools for tracking mobile employees still leave something to be desired: 36% of respondents track this in an Excel spreadsheet, up from 29% in 2012.  About another third (32%) outsource tracking to a consultant or TPA. The final third use a hodge podge of methods.

Participant Understanding Looks Like a Mountain Rather Than a Bell Curve: Only 34% of respondents felt that their global participants understand a good deal or completely understand their stock plan benefits. That leaves a two-thirds majority for whom participant understanding is at best, somewhat or partial. Global stock plans are a very expensive employee benefit, both in terms of the P&L and administrative cost.  It seems a little crazy to invest resources like this in a plan and not also invest in the education to make sure participants understand it.

Be sure to tune in to the webcast later today to learn more highlights from the survey.

– Barbara

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September 21, 2015

NASPP Chapter Meetings

It’s a big week for NASPP chapter meetings:

Carolinas: Emily Cervino of Fidelity presents “A ‘Data Dictionary’ for Stock Plan Decision Makers.” (Tuesday, September 22, 11:00 AM)

Austin: Denise Glagau of Baker & McKenzie presents “Equity Awards on the Move: Creating Effective Strategies for Equity Awards Granted to Globally Mobile Employees.” (Wednesday, September 23, 11:30 AM)

Houston: Equity Methods presents “2015: A Year to Remember in Stock Compensation – New SEC Regulations and the FASB’s Updates to ASC 718.” (Wednesday, September 23, 11:30 AM)

Nashville:  Emily Cervino from Fidelity and Jennifer Baehr from Certent present “Making Your Broker Relationship an Epic Partnership.” (Wednesday, September 23, 7:30 AM)

Salt Lake City: Ken Stoler from PwC presents “FASB Update – What’s Changing and When!” (Wednesday, September 23, Noon)

Silicon Valley: Kelly Geerts of E*TRADE and Rose Hoffman of Paypal present “Mission Impossible: Overcoming the Challenges of Payroll” (Wednesday, September 23, 11:30 AM)

Ohio & Michigan: The chapters host a joint regional event featuring two presentations.  Steve Dickstein of E*TRADE presents “Automate Me!  Automating Data Exchanges Between your Equity Compensation Platform and Internal Systems” and Emily Cervino of Fidelity and Jen Baehr of Certent present “A ‘Data Dictionary’ for Stock Plan Decision Makers.” (Thursday, September 24, 10:15 AM)

San Francisco: Michael Esposito of Solium and Elizabeth Dodge of SOS present “The Heat is On: Accounting Foibles, Missteps and Process Improvement” and Jason Flaherty and Jeremy Erickson of Orrick present “CEO Pay Ratio Update.” (Thursday, September 24, 11:30 AM)

Twin Cities: Mark Spittell and Leann Balbona of KPMG present “Compensation and Equity Trends Update.” (Thursday, September 24, 3:30 PM)


September 15, 2015

Increased Penalties for Forms 3921 and 3922

A riddle: what do the Trade Adjustment Assistance Program, the African Growth and Opportunity Act, and HOPE for Haiti have to do with Forms 3921 and 3922?  You might think “not much” but then you aren’t a member of Congress.  The Trade Preferences Extension Act, which includes provisions relating to those three things and a couple of other global trade-related items, also increases the penalties for failure to file Forms W-2 and forms in the 1099 series, which includes Forms 3921 and 3922 (why forms 3921 and 3922 are considered part of the “1099” series is another riddle for another day).

The New Penalties

Timing of Correct Filing     New Penalty
(Per Failure)
    New Annual Cap      Old Penalty
(Per Failure)
   Old Annual Cap
Within 30 days $50 $500,000 $30   $250,000
By Aug 1 $100 $1,500,000 $60   $500,000
After Aug 1 or never $250 $3,000,000 $100   $1,500,000
With intentional disregard,
regardless of timing
Min. of $500 uncapped Min. of $250   uncapped


Make That a Double

The penalties apply separately for returns filed with the IRS and the statements furnished to employees. If a company fails to do both, both the per-failure penalty and the cap is doubled.  Thus, if both the return and the employee statement are corrected/filed/furnished after Aug 1, that’s a total penalty of $500, up to a maximum of $6,000,000.  If intentional disregard is involved, that’s a minimum total penalty of $1,000 (and this amount could be higher) with no annual maximum.

Effective Date

The new penalties will be effective for returns and statements required after December 31, 2015, so these penalties will be in effect for 2015 forms that are filed/furnished early next year.

Penalties At Least As Interesting As the Trade Provisions?

Interestingly, when I Googled “Trade Preferences Extension Act,” so I could figure out what the rest of the act was about, the first page of search results included as many articles about the new penalties as about the trade-related provisions of the act.

If you want to know what the rest of the act is about, here is a summary from the White House Blog. There’s not a lot more to say about the penalties but if you want to spend some time reading about them anyway, here are summaries from Groom Law Group and PwC.

– Barbara

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September 14, 2015

NASPP Chapter Meetings

Here’s what’s happening at your local NASPP chapter this week:

Atlanta: Mike Stevens, Kerry Wenzel, and John Shannon of Alston & Bird present “Dodd-Frank Update: What you Need to Know about Clawbacks and Pay Ratios.” (Thursday, August 17, 11:30 AM)

Boston: Rich Baker and James Fucigna of Morgan Stanley and Tom Brennan of Posternak present “10b5-1 Plans – Best Practices, Issues and Trends.” (Thursday, August 17, 3:30 PM)

Phoenix: Emily Cervino from Fidelity Investments presents “Building a ‘Data Depository’ for Stock Plan Decision Makers.” (Thursday, August 17, 11:30 AM)

NY/NJ: Jennifer Tardif of Solium and Ryan Berdan of GuideSpark present “Field of Dreams: Building an Effective Participant Education and Communications Plan.” (Friday, August 18, 8:30 AM)


September 10, 2015

Unicorns and RSUs

I have to start off today’s blog saying that I never imagined a context where I’d see the words “unicorn” and “restricted stock unit” in the same sentence. I guess that was my first mistake – never say never, right? Turns out, thanks to a tweet from that led me to a recent NY Times article, I’ve learned that you can use unicorn and RSU in the same sentence. How, you ask? To get the full answer, you’ll have to follow me as I explain a phenomenon taking place in Silicon Valley – involving both.

Isn’t a Unicorn a Mythical White Horse with a Horn? 

If you are conjuring up images of a white mythical horse-like creature with a pointy horn, yes, that’s the unicorn I was thinking of also. However, the term is also being used to describe a new generation of tech start up companies. The New York Times describes these unicorns as “a class of hot start-ups valued at $1 billion or more. There are now more than 124 unicorn companies, according to CB Insights, a research firm that tracks start-up.” The largest and possibly best known unicorn is Uber.

Unicorns and RSUs

So where do the RSUs come into play? It appears that the tech variation of unicorns are stealthily and steadily poaching top talent from many other more established tech darlings – impacted companies include Google and Amazon. The carrot used to entice the talent? You got it – none other than RSUs. Lots of them. At this point, I’m reminiscing back to the dot com days of mega sized stock option grants offered to lure talent to start ups. Silicon Valley and the tech world in general have been no stranger to these talent wars. What appears to be different this time around is that the poachers are unicorns – heavily funded and backed by deep resources. Perhaps with that comes a stronger potential for success – at least in the eyes of some. These aren’t tech companies who are simply promising hope – in many cases the hope is already a reality. Uber is valued at more than $50 billion. That could feel pretty attractive to prospect employees who are eyeing the healthy sized RSU awards offered by the unicorn. According to the NY Times article, “To snag employees from large rivals, unicorns have a simple recruiting pitch: They are on a path to success, as illustrated by their rising valuations. Many offer generous equity packages of restricted stock units that can later translate to big paydays for employees if the unicorn goes public or is sold — a lure that neither Google nor any other public tech company can dangle. Also, the unicorns say they are far more fleet-footed and cutting-edge than large organizations.”

The issue of pursuing top talent and the impact on the organization left behind is not a new one. It’s the rapid rise of the unicorns and their arsenal of both compensation and arguments of an apparent path to future success that appears to be a significant issue for other tech companies. Top executives at Yelp and Amazon have both publicly acknowledged that their talent is being recruited by other organizations. Yelp’s CEO acknowledged that the unicorn bubble is having an impact on their organization.

What’s the Impact on Stock Plans? 

I’d like to know if stock plan administrators are feeling impacted by the unicorn situation. In my mind I see a rapid sequence of offers and counter offers, along more volatility in hiring/terminating employees, and I’m wondering if that affects the timing of how organizations have typically handled their grant approval process. Has there been an increase in “one off” or off cycle awards due to the reactionary nature of responding to an employee who has received an offer from a unicorn? Or are Silicon Valley stock plan administrators just as surprised as I am to head the word “unicorn” in the same sentence as “RSU”? If you’re a stock plan administrator in the tech industry or Silicon Valley, share your insights with us by taking the quick poll below:

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