Bill creating public disclosure requirements advances

An assembly bill that would create more public disclosure requirements for executive’s deferred compensation plans has advanced. The California Senate Judiciary Committee passed AB 1404 out of committee this week. 

Deferred compensation plans allow for a portion of an employee’s pay to be paid out at a later date. Most often, these appear as retirement plans, stock options, and pension plans and the taxes on this income are often deferred until completely paid out. 

If the employee expects to be in a lower tax bracket after retiring than when they initially earned the compensation, they have a chance to reduce their tax burden with a deferred payment plan. 

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This new bill, introduced by Assemblymember Miguel Santiago, attempts to close a loop-hole in certain deferred payment plans utilized by nonprofits. According to the bill,some nonprofit employees are offered a deferred payment option as a form of an alternative retirement plan because they also work for a for-profit off-shoot of the company. 

Nonprofits are required to file 990 forms. Tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations file this form to provide the IRS with the information required by section 6033, according to the IRS. Executive compensation is often filed on a seperate 990 form, or filed in another area of the form itself.  

The bill seeks to create more transparencies around this process, and establishes a set of reporting requirements for non-profits. If passed, the bill would require organizations to tell the secretary of state the total amount of deferred compensation given by the not-for-profit entity every year, the name and title of each individual receiving this type of compensation, whether taxes were paid on the deferred compensation, and the agreement or legal document governing the deferred compensation.

This bill would require a nonprofit sponsor to disclose certain information related to the deferred compensation of a current or former officer, director, employer, or trustee, who has over $250,000 in reportable compensation. The bill also required reporting of a for-profit entity with which the nonprofit is closely aligned and for which the nonprofit sponsor allocated. 

“Rising executive compensation is an important issue in the health care industry, and deferred compensation is an increasingly important component of that trend. This bill requires nonprofits that use their assets in support of deferred compensation to disclose the total compensation, the plan documents, and whether taxes were paid. This disclosure requirement will allow the public to understand if non-profit, tax-exempt assets are being used for their intended charitable purposes,” Assemblyman Santiago says in the bill text.  

Assemblyman Santiago specifically cited Kaiser Permanente as being a recipient of these tax breaks, and was a key focus in the creation of this legislation. Kaiser’s position with several not-for-profit sectors paired with for-profit arms like the Permanente Medical Group, home to medical doctors and Kaiser executives, makes the plan an ideal candidate for some of these deferred compensation plans. These plans, however, are in addition to the retirement plans that are already offered to these employees. 

Kaiser denies these claims, and continues that all arms of the company are transparent with their reporting practices. 

A recent study looked at the highest paid nonprofit executives who received large pay increases, nearly 35 percent overall, from FY 2016 to 2017. Executives with some of the highest incomes on the list came from Kaiser, signaling a trend of executive pay increases.  

The bill passed out of the Judiciary committee with 7 aye votes, and one no vote and is headed to the Committee on Appropriations for further consideration. You can watch the Senate Judiciary proceedings here