January 16, 2018

NAFCU seeks aid from IRS on deferred-comp plans

NAFCU President and CEO Dan Berger reiterated credit unions' concerns over the new tax law's employer-paid 21 percent excise tax on executive compensation of more than $1 million in a letter to Internal Revenue Service (IRS) Acting Commissioner David Kautter on Tuesday. He asked that the IRS look into ways to make the change less impactful to the industry.

Berger requested that the IRS evaluate its authority to "grandfather" those employment contracts entered into on or before Nov. 2, 2017; support a bill providing technical corrections, especially one regarding grandfathering and other issues affecting credit unions; and provide clarifications to credit unions on how they should comply with the new excise tax on certain nonqualified deferred compensation plans.

Berger explained the lack of parity between for-profit corporations and not-for-profits with respect to the treatment of existing nonqualified deferred compensation plans. He requested that the IRS look into its grandfathering authority because the tax bill exempts existing corporate executive deferred compensation contracts from the deduction limit but there is no similar provision for not-for-profit contracts.

The excise tax under the recently passed Tax Cuts and Jobs Act applies to all tax-exempt organizations – including both federal and state-chartered credit unions. Tax-exempt employers would be responsible for paying on the five highest-paid individual employees (including former employees for applicable taxable year) who have individual compensation in excess of $1 million annually. Berger explained that these changes "have sparked concerns about talent and the likelihood that credit unions will be forced to expend resources that could be better used to help their communities."