New Proxy Pension Benefits Table

Many public companies are now drafting their proxies and dealing with the new proxy disclosure rules.  One of the tables for many companies is the Pension Benefits Table.  For each named executive officer, this table needs to list on a separate line each qualified defined benefit plan as well as each nonqualified defined benefit plan such as a SERP that the officer participates in.  With respect to each plan for each named executive officer, the actuarial present value of the officer's accumulated benefit must be set forth. The actuarial present value of the accumulated benefit is computed as of the same pension plan measurement date used for financial statement reporting purposes.  The assumptions used to determine the actuarial present value of the accumulated benefit are generally the same assumptions used for financial statement reporting purposes other than the retirement age assumption is the plan's normal retirement age.

Fiancial statement valuations of benefits are likely to be different than the amount an officer would actually receive if the officer terminated employment.  Proxy drafters - are you providing the additional information regarding the actual benefit that the officer would receive if the officer terminated employment?  Material factors necessary to an understanding of each plan must be disclosed - when does this difference between financial statement valuation and termination value become a material factor?  The rules specifically list as an example of a material factor, the eligibility of an officer for early retirement and they suggest describing the early retirement payment and the benefit formula and eligibility standard for such early retirement.

Many plans are using a September 30th pension plan measurement date for financial statement purposes but will be moving to a December 31st measurement date.  This movement of measurement dates will generally mean a 15 month (rather than 12 month) difference in the benefit calculation from the prior year for the year in which the measurement date is switched.

To the extent executives negotiated additional years of service for purposes of their SERP benefit calculation, such fact must be noted and the impact of the additional years of service credit must be quantified.

Interested in exploring issues in preparing the proxy Pension Benefits Table, please share your experience.

Comments

[Norman Stein]

I assume that depending on the assumptions in effect as of any particular measurement date, the present value of an executive's benefit could be larger or smaller than the termination benefit.

What happens if the executive has a choice of benefit form and benefit timing, and that the choice of form and/or timing affects the value of the benefit? What benefit do you measure? The most valuable? And if the most valuable, could that include the termination benefit?