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Baker Botts’ Post-Election Analysis on Employee Benefits & Executive Compensation

News Release
HOUSTON, November 16, 2016 - Baker Botts Employee Benefits & Executive Compensation partners provide an “impact of the election” commentary regarding what President-elect Trump’s administrations will likely push for change concerning the Affordable Care Act, Dodd-Frank Act, Section 162(m) and the fiduciary rule. 

David Schiller, Dallas based Partner 

“Since the Affordable Care Act (better known as Obamacare) is actually a wide-ranging set of laws and regulations, its “repeal” will most likely focus on its major (and most controversial) centerpieces, including the Employer Shared-Responsibility Excise Tax for a company’s failure to offer healthcare coverage to its workers (also known as “Play or Pay”), the individual tax for failure to purchase minimal healthcare coverage (the “individual mandate”), the so-called Cadillac tax for overly rich employer healthcare coverage, the medical device tax and the 3.9% additional Medicare tax.” 

“The President and Congress could accomplish much of the repeal of Obamacare through executive orders, repeal of existing Regulations (with a notice and comment period), immediate withdrawal of proposed Regulations and sub-regulatory guidance (such as Department of Labor and Department of Health & Human Services FAQs), and a congressional Budget Reconciliation bill for revenue-related items that only requires a simple majority and cannot be filibustered.” 

Gail W. Stewart, Houston based Partner 

“The Trump administration is expected to move to reshape the Dodd-Frank Act, which was adopted in the wake of the 2008 financial crisis.” 

“Among the requirements most likely to be dismantled is the “pay-ratio disclosure” provision, which would require most publicly traded companies to calculate and report the ratio between the total compensation of the CEO and that of the median employee.” 

“Companies have been gearing up for the task of determining median compensation and have expected to begin reporting the results in their proxies filed in early 2018. These companies may now instead decide to wait and watch for indications of relief in the early days of the new administration.” 

“Ironically, the most important benefit to companies if the rule is repealed will not be avoiding disclosure of the ratio itself, but of avoiding disclosure of a median compensation level that could lead to widespread dissatisfaction by employees who find themselves below that median level of pay.” 

Rob Fowler, Houston based Partner 

“The Department Of Labor’s (DOL) fiduciary rule is scheduled to go into effect in April 2017, but President-elect Trump’s designated labor transition team leader, J. Steven Hart, has been a lobbyist focusing on benefits issues and will be fully in tune with the major controversy over this rule. The Trump administration could very well delay or overhaul the rule. 

“However, there are numerous factors that might allow the rule to go forward. For example, big industry players have already invested significant resources to prepare for compliance, and thus may be reluctant to use their influence to push for repeal given this investment and the potential advantage it could give them over smaller players.” 

Eric Winwood, Dallas based Partner 

“Although there was no discussion of this on the campaign trial, the election of Donald Trump may be the beginning of the end of the Section 162(m) $1,000,000 tax deduction limitation on top executive compensation.”
 
“Over its 23-year history that dates back to the Bill Clinton administration, Section 162(m) has always been a paper tiger when it comes to achieving its purpose – reducing the total amount of compensation provided to our top executives. This is mainly due to a huge exception in the rules that allows for performance based compensation, which is broadly defined, to be exempt from the $1,000,000 limitation.” 

“As a result, Section 162(m) has resulted in a shift towards compensating top executives with a greater mix of bonus, stock options and similar types of compensation, but has not resulted in overall compensation reductions. Given that some of the tax provisions of Obamacare were added into Section 162(m), it’s hard to imagine that Section 162(m) will fly below the radar screen when the new administration and the Republican Congress follow up on their promise to take a hard look at dismantling Obamacare.” 

Mark A. Bodron, Houston based Partner 

“During the campaign, neither Mr. Trump nor Secretary Clinton discussed legislative proposals aimed at retirement savings by Americans. However, tax reform is one of the first areas — along with the repeal and replacement of ACA and immigration reform — that Mr. Trump and members of the Republican-controlled houses of Congress indicated they will address.” 

“In order to help pay for the tax rate reductions, Mr. Trump has promised that he and Congress will look at reducing or eliminating some current tax-preferences in the Internal Revenue Code for retirement savings in 401(k) plans and IRAs. This could include removing the ability to make Roth conversions and/or reducing annual amounts that could be contributed on a pre-tax basis.” 

“Another unknown is what the Trump administration and Congress will do about pension funding and the solvency of the PBGC.” 


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