Employee Benefits: Retirement and Other Benefit Plans (Executive Compensation, Equity, and Fringe Benefits)
Domain overview
This domain tests nonqualified deferred compensation, equity awards, executive arrangements, and fringe-benefit exclusions. Expect IRC 409A, 280G, 162(m), ISO/NSO/RSU tax timing, and IRC 132 categories.
Executive compensation
NQDC plans, including SERPs, excess benefit plans, and rabbi trusts, avoid qualified-plan limits but must satisfy 409A: a written plan, timely deferral election, permissible distribution events (separation from service, disability, death, change in control, unforeseeable emergency, or fixed date), and no impermissible acceleration. Violations trigger a 20% additional tax plus interest. IRC 280G disallows deductions and imposes a 20% excise tax on excess parachute payments. IRC 162(m) limits deductions to $1 million per covered employee; the performance-based exception was largely repealed after 2017.
Equity and fringe benefits
ISOs require a $100,000 annual grant-date value limit, a 10-year maximum term, and holding periods (2 years from grant, 1 year from exercise). NSOs are taxed at exercise. RSUs are taxed at vest; 83(b) elections apply to restricted stock, not RSUs, and must be filed within 30 days. ESPPs under IRC 423 have a $25,000 annual limit. IRC 132 excludes no-additional-cost services, qualified employee discounts, working-condition fringes, de minimis fringes, and qualified transportation fringes within limits.
Worked example
An employee receives ISOs with $150,000 aggregate grant-date value in one year. Only $100,000 can be incentive stock options; the excess $50,000 is treated as NSOs. Reasoning: IRC 422(d) limits the value of stock first exercisable as ISOs in a calendar year, measured at grant.
Traps
RSUs are not taxed at grant or exercise; restricted stock with an 83(b) election starts the holding period at grant. Missing 409A election timing cannot be fixed by later paperwork. De minimis excludes cash, gift cards, and frequent awards. 162(m) still applies to covered employees even without performance pay.