SEC to Announce New Position on Registration of Nonqualified Deferred Compensation Plans

The Securities and Exchange Commission (SEC) has indicated that it will soon make a public announcement that all elective nonqualified deferred compensation plans must be registered under the Securities Act of 1933, unless they otherwise qualify for an exemption. The registration requirement would apply to both public companies and privately-held companies. This registration requirement should not be of concern for public companies, which can register on Form S-8, but it will present difficulties for private companies, which cannot use Form S-8. Although there are a number of possible exemptions that may apply to plans maintained by private companies, there is no guarantee that an exemption will be available. All employers maintaining elective nonqualified deferred compensation plans will need to consider whether their plans qualify for an exemption. Failure to register a plan that is not exempt may result in penalties on the employer and a right of recession for employees that are not satisfied with the performance of the deferred compensation plan.

It is anticipated that the registration requirement will apply to public companies in 1997 and to private companies in 1998. A future edition of the Employee Benefits Alert will discuss the registration requirements after the SEC makes its public announcement.