Salary Deferral Arrangement

The correspondent noted the position in 2020-0864831I7 that full-value restricted share units (“RSUs”) granted early in the calendar taxation year of the employer (the “Grant Year”) were considered to be in respect of services in the previous year, so that such award came within the salary deferral arrangement (SDA) definition, and would not be excluded under para. (k) of the SDA definition if the RSUs were settled in the third year after the Grant Year, i.e., more than three years after the end of the year in which the services had been rendered. In this regard, CRA now stated:

In tandem with our general and longstanding presumption that a grant of full-value RSUs are in respect of the grantee’s past services, the relatively short passage of time between Canco’s fiscal year end and the Grant Date increased the likelihood that the grant of RSUs would be in respect of past services rendered by the grantee in the year prior to the Grant Year.

CRA also acknowledged that a grant of full-value RSUs could be considered to be solely in respect of services rendered after the grant date (i.e., only for future services), stating:

[I]t is not inconceivable that a signing bonus for a new employee would be solely in respect of services to be rendered in the year in which the relevant employment agreement was executed. A similar conclusion may also apply to a bonus awarded to an existing employee for accepting an overseas assignment. …

Even if a grant of full-value RSUs was related to past services, it is also still possible that those past services were rendered solely in the Grant Year. Full-value RSUs awarded to an employee might be considered to relate solely to services rendered in the Grant Year if, for example, the facts and documents established that the grant was made in recognition of a performance accomplishment (such as a large sale) that occurred earlier in the Grant Year.

An employee transferred the individual’s rights under a deferred share unit plan described in Reg. 6801(d) (a "DSU Plan") to the employee’s personal holding company. In finding that the plan would not qualify for the para. (l) exclusion after such a transfer, so that the FMV of the deferred share units would be included in computing the employee's income in the year of the transfer (to the extent that such value had not already been included), CRA stated:

A transfer to another person would contravene the preamble to paragraph 6801(d), which requires that the agreement be between the corporation and the employee and that it be that employee who may receive amounts under the arrangement. Furthermore … the transfer of the employee's rights in the DSU Plan could indirectly allow the individual to access the value of the individual's rights before one of the times specifically identified in paragraph 6801(d)(i) … which would also contravene the requirements of paragraph 6801(d).

However:

[T]he presence of a transfer that would be at the discretion of the employee and the employer could demonstrate that the parties never intended to meet the criteria required for the plan to qualify as a DSU plan. In such circumstances, the agreement or arrangement would qualify as an SDA from the time of its creation, resulting in the retroactive application of the SDA rules.

Background

The employer currently has two supplementary executive retirement plans (being unfunded plans) for the Company’s CEO and for its VPs, which had been defined benefit plans.

Proposed transactions

The two SERPs will be amended to provide benefits on a defined benefit basis based on eligible service after the effective date, but subject to some grandfathering for existing plan members.

In respect of each month of service for which the member is making the maximum contributions under the Company registered pension plan (RPP), the Company will make notional contributions to the member’s account in an amount equaling the excess of 10%of the member’s targetcd compensation for such month (including 1/12 of the targeted year-end bonus) over the amount of the Company contributions made for such month to the member’s RPP, except that if such amounts for the year prove to exceed 18% of the actual compensation of the member for the year over the RPP limit of the member for that year, the employer will pay, as soon as possible, the excess in a lump sum to the member (or, if the member has died, to the member’s spouse).

The notional contributions in respect of a member will be credited with notional investment returns to reflect the returns under a pooled investment fund as selected by the Company from time to time from the pooled investment fund options available under the RPP.

If a SERP member ceases service for any reason other than death, the employer will pay the SERP benefit in 10 annual instalments, unless the member has elected for a fewer number of instalments or to have the balance in the member’s account paid as one lump sum.

If the member dies before payments of the benefit have commenced, the balance in the member’s account will be paid to the surviving spouse, or to a designated beneficiary.

Rulings

Re no salary deferral arrangement or retirement compensation arrangement, inapplicability of s. 5(1) or 6(1)(a), s. 56(1)(a)(i) application to benefit payments to member, spouse or beneficiary, deductibility of employer contributions and no interest accrual to member under s. 12(4).

CRA reiterated its statements in 2020-0850281I7 (see also 2020-0841961I7) that it will no longer consider any ruling requests pertaining to whether any given formula-based appreciation plan is a a salary deferral arrangement, unless the plan is a plan described in ATR-45 ((re share appreciation rights plans), or the ruling request is about whether one of the exceptions, listed in the SDA definition, applies, given that such a determination should be made on an annual basis (so that all the relevant circumstances cannot be ascertained at the time of a ruling request) and that such plans are “vulnerable to manipulation.”

CRA went on to note that it accepts that many formula-based appreciation plans are not SDAs where the underlying formula closely approximates the FMV of the relevant shares of the corporate employer over the duration of the plan.

This was a companion memo to 2020-0850281I7 and was issued to clarify that prior statements did not indicate “that solely forward-looking or future-orientated incentive plans with certain characteristics are not salary deferral arrangements (‘SDAs’).” The Directorate noted:

• Prior statements “made strictly in the context of ATR-45 SAR Plans” should not be “misconstrued as implying that a right to receive an amount after the end of a particular year is not created until the units of any given incentive plan are exercisable… .”
• A determination at any year end as to whether the rights of a plan participant give rise to a SDA turns on whether (i) the employee has a right to a deferred amount (which may be the case even for an ATR-45 SAR plan); and (ii) the purpose test is met (which generally is not considered to be the case for an ATR-45 SAR plan, and is a question of fact for other plans). Respecting (i), “it is possible for a right to a deferred amount to arise under an incentive plan even before the units of that plan are exercisable.”
• “The fact that units in other types of incentive plans have no intrinsic value when granted is not a sufficient basis to conclude that the plan is not a SDA at inception, nor to conclude that the plan need not be tested on an annual basis.”
• “Moreover, any prior statements to the effect that a particular incentive plan does not give rise to a SDA because it is future-oriented at time of grant should not be construed as a categorical statement that all future-oriented plans fall outside the scope of the SDA rules.”
• “… [A]n incentive plan can be a SDA before the final value of the units has been determined at the occurrence of the triggering event. The fact that the value of the units of an incentive plan is subject to change prior to the occurrence of a triggering event does not, in and of itself, give rise to an indeterminable amount before the occurrence of the triggering event. On the contrary, we expect that a deferred amount can be determined at any given year end after the issuance of the units, even if at that time the unit is not exercisable. If the design of an incentive plan results in a positive value of the respective units at any given year end after the issuance of the units, the employee has, at that time, a right to receive an amount after that year that is attributable to services rendered by the employee, notwithstanding the fact that this amount may fluctuate from year to year.”

The Directorate was asked to rule that a received a request to rule that a performance bonus plan would not be a salary deferral arrangement (“SDA”). The Proposed Plan would have granted units whose value at the redemption date would have been essentially based on changes in EmployerCo’s cumulative retained earnings (i.e. retained earnings on redemption date minus retained earnings on grant date) over the period, plus dividends paid over the same period. The Directorate concluded that it could not rule because, under this formula, the units’ value would have increased over the duration of the vesting period even if EmployerCo’s net earnings remained stable over the period (as had been the case in prior years).

Thus, on the first year end in which the units have a positive value, the participants in the Proposed Plan would have, at that time, a right to receive an amount that is, or is on account or in lieu of, salary or wages of the relevant employee for past services.

The Directorate announced:

... ITRD will no longer consider any ruling requests pertaining to whether any given formula-based appreciation plan is a SDA, unless:

i) the plan is of a type described in ATR-45 …; or

ii) the ruling request pertains to whether one of the enumerated exceptions listed in the definition of SDA apply to the plan.

… ITRD is increasingly concerned that the financial metrics that underlie formula-based appreciation plans may be susceptible to manipulation … [which] can be used to obfuscate the fact that a formula-based appreciation plan’s underlying purpose is to defer tax … .

… [S]hare appreciation rights (“SAR”) plans … described in ATR-45 … [have] the following characteristics:

• The unit has no intrinsic value at the date of grant;
• The value of a unit is not guaranteed and may have a negative value after the date of grant; and
• The value of each unit at any particular time is determined by subtracting the FMV of a share of the employer at the date of grant from the FMV of a share of the employer at that particular time.

The CRA's longstanding position remains that a unit issued under a SAR plan with the above characteristics will generally not be considered to be a SDA. This is because we consider such plans to be significantly less susceptible to manipulation … .

… [O]ur decision to no longer consider ruling requests for formula-based appreciation plans does not mean that the CRA now considers all such plans to be SDAs.

Background

The Employees and Executive Employees of Employerco (a Canadian public corporation) may participate in the Company Group RRSP under which: an Employee or Executive Employee can elect that an amount between 1% to 9% of their base salary be deducted from each pay and contributed to the Company Group RRSP; and Employerco matches that contribution through a contribution to the Company Group RRSP equalling the lesser of 50% of the RRSP contribution limit under the Act and 9% of the employee’s base salary for the year.

Employerco pays annual bonuses (the “STIP Bonuses”) under its short-term incentive plan to such employees after an annual evaluation.

Proposed transactions

Employerco will amend the terms of the Company Group RRSP to provide that an Employee or Executive Employee can elect that up to 8%, of the their base salary plus any STIP Bonus received in a pay period, will be deducted from such pay and contributed to the Company Group RRSP, and that Employerco will make a contribution to the Company Group RRSP of the lesser of 125% of such employee contribution during the year; and 5/9th of the RRSP dollar limit under the Act for that year, or such lower amount as may be specified by the employee – with the employee responsible for ensuring that the total of such contributions does not exceed the applicable RRSP contribution limits.

In addition, an unfunded and unsecured “Supplemental Plan” will be established under which Employerco will make a notional contribution to the Member’s Notional Member Account in an amount equal to the lesser of:

(i) 18% of the excess, if any, of the Employee’s "Earnings" (i.e., base salary plus STIP Bonus) for the year over the Earnings level engaging the RRSP dollar limit for that year; and

(ii) 15% (or 10%) of the Executive Employee’s (or Employee’s) earnings for the year less any amounts contributed by Employerco to the Company Group RRSP in respect of the year for such Employee.

Furthermore, the amount in the Notional Member Account will be increased each year based on an interest-rate factor (based on 5-year Government of Canada bond yields).

On Termination of Employment, that Member shall be entitled to the total value of that Member’s Notional Member Account, which shall be distributed, in consecutive annual payments of equivalent amounts payable over 10 years, commencing no later than one year following the date on which the Member’s entitlement to receive benefits under the Supplemental Plan arises - except that the Member may elect to receive the distributions as a lump sum, or over 1 to 9 years commencing no later than one year later.

There will be no reduction of salary or wages, that would have otherwise been paid to the Members, in return for the benefits under the Supplemental Plan.

Rulings

• The Supplemental Plan is not a salary deferral arrangement or retirement compensation arrangement
• No inclusion to Member under s. 5(1), 6(1)(a) or 12(4) and, instead, inclusions under s. 56(1)(a)(i) as superannuation or pension benefits are received.
• Subject to ss. 18(1), 67 and 78, Employerco entitled to deduction when Employerco is required to pay such amounts.

As consideration for bringing new employees to a Canadian corporation (“Opco”), Serviceco is issued phantom shares of Opco which generate cash payments equaling the dividends paid on corresponding common shares of Opco and which, on a change of control, are convertible into common shares of Opco. When asked to comment on the tax consequences respecting the phantom shares, CRA indicated that the relevant facts were set out in insufficient detail to comment.

The share appreciation rights (SAR) plan of an employer corporation provides for dividend equivalents on SAR units that are satisfied by way of cash payments made annually to employee participants. If the current vesting period for a SAR unit granted under the plan is extended from three years to five years, would this engage the salary deferral arrangement (SDA) rules? CRA responded:

[A] unit issued under a SAR plan that entitles the employee to receive only the increase in value of the underlying share from the date the unit is granted to the date it is redeemed will generally not be considered to be an SDA. …This general position also extends to SAR plans that include a dividend equivalent feature … provided that (i) the dividend equivalents are credited in the form of additional units, and (ii) the eventual settlement in respect of the dividend equivalents is on the same basis and timeline as provided for under the plan for the whole unit.

If a SAR plan provides for dividend equivalents to be paid in cash on an accelerated basis (such as annually or after each dividend payment date) without the whole of the corresponding unit being redeemed, the CRA general position will cease to apply with effect from the time that the employee becomes entitled to receive the first such dividend equivalent payment. This is because, in such a case, the units would not be considered to be solely for future services.

CRA went on to indicate that the plan would qualify under the para. (k) exception:

where (i) the units granted constitute a “right to receive a bonus or similar payment” (which we would generally expect to be the case for a SAR plan), and (ii) the dividend equivalent component is redeemed within the same three-year window that applies to the main component of the unit … .

Supplemental Plan

In addition to a defined contribution registered pension plan (“RPP”) under which the employer contributes a fixed percentage of each member’s pensionable earnings and also matches employee voluntary contributions, the employer also provides an unfunded and unsecured plan for RPP members whose contributions are capped by the RPP limits. Under each Supplemental Plan, notional contributions (and interest) are allocated to the member’s account based on the same contribution rate as the RPP less the actual employer contributions made to the RPP.

The plan also allows the member to elect to reduce or forego future bonus entitlements and accrued vacation pay entitlements for additional allocations (of equal amounts) to the member’s account. At the earliest of termination of employment, retirement or death, the member is entitled to benefits equal to their account balance as a lump sum, or annual instalments over up to 10 years.

Retirement Allowance Plan

Under the Retirement Allowance Plan, notional contributions are allocated each month to an executive’s account of 7% of the executive’s monthly remuneration, plus a further one-time $125,000 notional contribution at the start of the plan.

The executive, at the earlier of termination of employment or attaining 65, is entitled to the account balance as a lump sum, or in 10 annual instalments – and also (outside of the plan) to an amount equalling 24 months’ base salary plus an amount in lieu of pension and automobile benefits.

SDA rules

Do the SDA rules apply? CRA responded:

Where a [supplemental pension] plan provides benefits that are not reasonable superannuation or pension benefits, we are of the view that one of the main purposes is to postpone tax payable and an SDA will exist.

The CRA generally takes the position that supplementary pension benefits will be considered reasonable if:

• the terms of the plan are substantially the same as those of the RPP that applies to the same beneficiaries to whom the plan applies; and
• the benefits that can be paid under the plan are the same as the benefits that would have been paid under the RPP but for the defined benefit or money purchase limit. …

[T]he basic contribution component of the Supplemental Plan appears to be largely consistent with the CRA’s general position outlined above. … However, the bonus contribution and vacation pay contribution components of the Supplemental Plan, as well as the Retirement Allowance Plan, appear to be primarily motivated by tax deferral considerations …[and] would most likely constitute an SDA.

Corporation 1, which is wholly-owned by Parentco (a société anonyme, i.e., SA or public limited company), established two phantom stock plans (Plans 1 and 2) for five key employees under which, on the occurrence of a Triggering Event, an employee will receive a cash payment equal to the excess of the Market Value of Shares of Corporation at the date of the Triggering Event over their initial Market Value on grant. Except where the Triggering Event is one which discloses a value (namely, an acquisition of control, amalgamation, business sale or IPO), the Market Value was computed as nine times the average adjusted EBITDA for the previous two fiscal years plus working capital, as adjusted, and minus long-term debt. In addition to the “Material Change” Triggering Events referenced mostly noted above, a Triggering Event references the employee’s death, departure or retirement, and termination of employment for any reason other than termination for a listed delict such as theft.

Ruling respecting the phantom plans not being a salary deferral arrangement (with qualifier that this is a question of fact).

Not knowing of the existence of an IPP respecting the same employee, the RCA actuary did not take into account the amount of contributions (based on the same past and current service years) made by the corporation to the IPP for the employee's benefit in order to establish the RCA contributions. Are the corporation's contribution to the RCA and IPP unreasonable and non-deductible, and would this change if the employee is a shareholder? CRA responded:

In the situation where the contributions to an IPP meet all the conditions for being deductible under paragraph 20(1)(q), the fact that the employer also pays money to a non-registered plan without taking into account the contributions paid by the employer to the IPP for the same employee should not, in and of itself, result in the IPP contributions being unreasonable.

Where a plan provides for benefits that are not reasonable, we are of the view that it is a SDA under subsection 248(1). …

In general, supplementary pension benefits are considered to be reasonable when the terms of the supplemental pension plan are substantially the same as those of the IPP. In addition, benefits that may be paid under the plan must provide the employee with a supplement for the benefits that would be provided under the IPP but for the defined benefit limit. ...

[I]n the situation where a plan was created for the benefit of an employee who is a shareholder or a related party, the CRA would apply the same criteria as those set out above.

underline;">: Current Plan. Outside board members and officers of a of a Canadian-controlled private corporation (the "Company") hold "SAR Units" which entitle them on cessation of employment otherwise than for cause or on a "Change of Control" (as defined) or termination of the SAR Plan to receive a payment based on the number of their units and the imputed increase in value of each unit from its grant date. The FMV of the Company for purposes of this computation is based on a weighted average of multiples of trailing EBITDA (excluding unusual items) for three trailing periods, plus cash and cumulative corporate distributions, and minus debt. Amounts paid re an employee of a particular subsidiary are charged back to that sub.

Proposed amendments

The Plan will be amended to add new "Threshold Dates" allowing the "Grantees" to redeem a portion of their rights for their cash value when the FMV of the Company reaches certain thresholds (representing specified increases in Company FMV) at specified measurement dates. Furthermore, the calculation of the Company FMV will be modified to include certain extraordinary events in the computation of EBITDA and to make certain adjustments in the event of a business acquisition or divestiture, and the FMV formula will be modified "to ensure that the value of SAR Units is not unduly affected by a year that is exceptionally good or exceptionally bad." These changes will not result in an immediate increase in the value of the existing units. "As a matter of law in the relevant jurisdiction, the proposed amendments…will not result in new agreements coming into existence… ."

Rulings

Provided a Grantee is not entitled to receive the value of rights granted to such Grantee, the amended Plan will not be a salary deferral arrangement. When a Grantee is entitled to receive the value of the rights granted, including on a Threshold Date, it will be a question of fact whether the Plan constitutes an SDA at that time. No disposition of rights resulting from the proposed amendments.

2011-0426571C6 indicated that “the allocation of a future bonus to a HCSA [health care spending account] should be taxed as employment income … because the allocation of a bonus to obtain additional flex credits in a HCSA is an allocation of foregone cash remuneration and should be subject to tax. Respecting the application of this position to a particular situation, CRA stated that this position:

applies to situations where a future bonus is converted into a private health services plan of an employee in a benefits plan tailored to the needs of employees. The question of whether that position applies to a particular situation is a question of fact that can only be determined after having examined all the facts and all the documentation relevant to that particular situation.

Where a specific supplemental employee retirement plan provides benefits that are not the same as those provided under registered pension plans, then the terms of the SERP will be considered to determine if the benefits are reasonable. Where an employee is given the option of using severance amounts to acquire additional pensionable service under a SERP, the plan will not be excluded from the salary deferral arrangement definition (and it would be arguable that the employee had constructively received the retiring allowance at the time the amount was paid into the SERP).

After quoting the transitional rule for the introduction of the salary deferral arrangement rules, generally effective July 1, 1986 except regarding inter alia deferred amounts (“under an agreement in writing made before February 26, 1986”) “in respect of … services rendered by the taxpayer after June 1986, where the taxpayer is obliged to defer the receipt of the amount and cannot cancel or otherwise avoid that obligation,” CRA found that the contracts presented were not grandfathered given that they ” were not signed before February 26, 1986” and “there is no evidence that the taxpayer had an obligation to defer receipt of an amount and could not cancel or otherwise avoid that obligation.”

An arrangement styled as a retirement compensation arrangement was in fact a salary deferral arrangement (which, under para. (k) of the RCA definition, took precedence over the RCA definition) given that the arrangement allowed a participant to defer pay and, thus, to defer compensation and, in addition, the employer made no contributions to the arrangement from its own assets.

A closely-held corporation that was dividending out all the profits of its business also established a purported retirement compensation arrangement (RCA) trust for two employees (Mr. A and Mr. B) who, indirectly, were the corporation’s two shareholders, and made contributions to the trust that were funded by loans from the trust. After finding that the arrangement did not qualify as an RCA because the benefits were not reasonable, the Directorate went on to indicate that it also was not a salary deferral arrangement because “the contributions to the trustee would not relate to amounts accruing to Mr. A and Mr. B as salary or wages.”

Some employees of an employer accumulate overtime in a time bank with the intention of eventually accelerating their retirement or cashing in the hours at retirement. However, most employees use the accumulated time within 12 months of when the hours were accumulated. As to whether this was a salary deferral arrangement, CRA stated:

Whether a main purpose of the creation or existence of such a right is to defer tax payable under the Act is a question of fact that can only be resolved after considering all the relevant facts. The fact that the period for deferring an amount does not exceed 12 months or that the purpose of the plan or arrangement is to allow an employee to accelerate retirement does not allow us to conclude that a plan or arrangement is not a salary deferral arrangement. If one of the main purposes is to allow an employee to defer tax, the plan or arrangement in respect of that employee could be a salary deferral arrangement.

In a general response to a query as to whether a special reserve fund that an employer creates by depositing money with a broker to provide for the payment of a portion of a pension payable for the retirement of a management employee will constitute a salary deferral arrangement or a retirement compensation arrangement, CRA stated:

[W]here an employer agrees to pay amounts to an employee on or after retirement, and the amounts cannot reasonably be regarded as salary or wages that have been agreed to be deferred, the arrangement will generally not be regarded as a salary deferral arrangement.

After noting that contributions by a corporation to an RCA would not be deductible in computing its income where the contributions related to services rendered by a shareholder-employee while self-employed and before the corporation’s incorporation, or to the extent that s. 67 applied, CRA turned to the question whether there would be an SDA if the corporation regularly reduced bonuses to a shareholder-employee by the amount of related contributions to the employee RCA for its employees, and stated:

Where a plan or arrangement can qualify as both an RCA and an SDA, it will be treated as an SDA … .

… [I]t can be assumed that, except in special circumstances, where a portion of an employee's salary or wages is deferred under an agreement, one of the main purposes is to defer the payment of taxes. …

[W]here a significant portion of the salary or bonus to which a shareholder-employee is entitled for services rendered is reduced so as to be contributed to an RCA instead, the existence of the RCA could be questioned since the contribution made by the employer may not relate to benefits that are receivable at retirement. Rather, the contribution is more likely to be treated as deferred taxable compensation that is a benefit under an SDA. In our view, it may be difficult to argue that the arrangement in question was not put in place to defer tax otherwise payable.

Under a phantom share arrangement, the phantom shares will have a zero value at the time they are granted to employees, who will be entitled to receive the increased value of the phantom shares only upon termination of employment but, immediately prior to that time, will have the option of either cashing out the entire amount or having the employer acquire an annuity contract under which the employee will be the annuitant. CRA stated:

[W]here at maturity of a stock appreciation rights plan, the plan provides for a vested right to receive the increase in value of the phantom shares (either immediately through a lump sum payment or by payments deferred over a number of years through the purchase of an annuity), it is our view that the plan could at that time become a SDA if the plan beneficiary elects to defer the amount, because there will be the creation of a "right to receive an amount after the year". In our view, the right to receive the appreciation may represent an amount accruing to the beneficiary as salary or wages for services rendered in the year or a preceding taxation year.

Ruling that the right of an executive to sell shares of a private company (CCPC) employer acquired by him on exercise of employee stock options to a corporation nominated by the employer corporation would not constitute a salary deferral arrangement.

The Directorate provided a review of the transitional rules for grandfathering of plans which were employee benefit plans before February 26, 1986 in the context of a plan that had received a ruling in 1984 regarding its status as an employee benefit plan.

It was proposed that an executive participate in a non-funded supplementary retirement arrangement under which, if he retired after 12 years of service, he would receive annual pension benefits equal to 30% of his average annual remuneration during the three-year period preceding his retirement (which benefits would continue for 15 years subsequent to his retirement, and with provision for his spouse receiving 75% of the benefits should he die). With respect to the issue as to whether payments under the arrangement were considered to be something other than a pension due to the short period (12 years) before vesting occurred, the Department was of the view that a pension of 30% after 12 years of service was commensurate with a normal pension of 70% after 35 years.

Options received by employees on the merger of two U.S. corporations are amended, following the merger, to provide that they will be paid Dividend Equivalents equal to the amount of any dividends that would have been paid to the holders following the effective date of the merger had the American depositary shares underlying the options been delivered and outstanding on the applicable dividend record date. Any such dividend equivalents would be paid when the options were exercised. "The sole purpose of the Dividend Equivalents is to provide additional incentive for an option holder to remain with the Merged Corporation group of companies. It is expected that the ultimate value of the Dividend Equivalent component of the 1997 Options will be insignificant in comparison to the capital appreciation that may be realized with respect to the shares that may be acquired under the 1997 options."

Ruling that the Dividend Equivalents of the notional interest thereon would not constitute a salary deferral arrangement.

The SDA rules could apply to a stock appreciation rights plan if a beneficiary under the arrangement chooses to defer receipt of an amount payable under the plan in a year.

A phantom stock plan may be a salary deferral arrangement if its effect is to postpone taxation of an amount, or if there is constructive receipt of an amout without taxation.

Detailed discussion of proposed arrangement respecting leaves of absence for public sector employees.