Current accounting issues concerning employee benefits October 13, 2008

1. Current accounting issues concerning employee benefits October 13, 2008

2. IFRS– retirement plans • Some matters for consideration…… • Multi-employer plans • Lump sum payments • Gain / loss recognition • Overfunded plans Our perspective • U.S. actuaries not prepared to produce IFRS valuation reports • HR may not understand financial / tax implications well enough to request and provide appropriate data. • Multi-functional (HR, tax, legal, financial reporting, accounting, payroll) administrative process documentation and modification due to IFRS standards. • Third party administration challenges.

3. IFRS– compensation programs • Some matters for consideration…… • Pay and performance alignment • Pro-rata vesting • Deferred taxes and chargeback agreements • Recognition of employment tax costs Our perspective • Process and plan redesign considerations surrounding performance metrics. • Multi-functional (HR, tax, legal, financial reporting, accounting, payroll) administrative process documentation and modification due to IFRS standards. • Data and analysis challenges of financial modeling for share-based compensation arrangements. • Third party administration challenges.

4. Diagnostic activities

5. Diagnostic activities

6. Diagnostic activities

7. Diagnostic activities

8. Diagnostic activities

9. Issues or opportunities? • What is our long-term pension funding strategy? • How can we maximize our tax deductions? • What is the impact on company cash flow? • Do these changes impact our loan covenants and financing strategies? • What is the effect under FAS109?

10. Pension Protection Act (PPA) • Pension Protection Act signed into law in August 2006 • Generally effective for plan years beginning on or after 1 January 2008 • Requires higher funding levels to maintain qualified plan status • Deduction limits • Maximum deductible amount had increased from 100% to 150% of the current plan liabilities • Increases allowable deductions for an employer that maintains both a defined benefit and defined contribution plan

11. FASB issued statement 158 on September 29, 2006 Generally effective for company fiscal years ending after December 15, 2006 Amends FASB Statements No. 87, 88, 106, and 132(R) Requires balance sheet recognition of an asset for a plan’s overfunded status or a liability for a plan’s underfunded status Requires fiscal year-end measurement date for all employers Balance sheet changes flow through other comprehensive income (net of tax), not P&L Immediate recognition of gains, losses, plan amendments, etc. FAS 158

12. Coordinating FAS 158 and PPA PPA FAS 158 • Tax deductible contribution increases • Assess whether plan is at-risk or subject to benefit restrictions • Long-tem funding strategy opportunities • Increased reporting and disclosure requirements • Impact on design, communication and operation of pension plans • Modifications to funding, investment, and benefit policies • Budgeting & disclosure implications due to fiscal year-end measurement date requirement • Implications for unfunded obligations on loan covenants and financing strategies • Determination and segregation of current and non current amounts pursuant to FAS 109

13. Executive compensation-Code Section 162(m) • Annual $1 million deduction limit applies to: • Compensation other than “performance-based compensation” • “Covered employees” of public companies • Performance-based compensation • Compensation paid solely upon attainment of one or more pre-established, objective performance goals set up by a compensation committee of outside directors • Shareholder approval of the goal and compensation committee certification that the goal is met

14. Executive compensation-Code Section 162(m) • PLR 200804004-reversed previous IRS position • Compensation is not “performance based” if payments are made upon involuntary termination without regard to performance goal • Revenue Rule 2008-13- confirms the IRS’s new position • Provides a prospective effective date if either: • The performance period begins on or before January 1, 2009 • The compensation is paid pursuant to contract in effect on February 21, 2008 (without renewals or extensions) • Level of authority for claiming a deduction could have significant impact on Financial statement and tax return

15. Executive compensation-Code Section 162(m) • FAS 109/FIN 48 support • Assess documentary compliance • Assess operational compliance • Develop processes and controls • Composition of Compensation Committee • Timing of shareholder approval • Timing of goal-setting and goal-attainment certification • Structure in place to ensure performance goals are objective

16. Executive compensation- equity/incentives • Assess global equity tax deductions • U.S. deduction is not available for foreign awards • Availability of deduction in a particular country • Country specific requirements for securing a deduction (corporate chargeback arrangements, etc.) • Does the plan meet tax favored status in foreign country?

17. Executive compensation-Code Section 280G • Code Section 280G Mitigation Strategies • Shareholder vote for privately held corporations • Demonstrate with “clear and convincing evidence” that potential parachute payments constitute reasonable compensation for • Pre-change in control services • Post-change in control services • Abiding by a non-compete

18. Executive compensation-Code Section 280G • FAS 109/FIN 48 support • Review Code Section 280G calculations • Assess risk associated with Section 280G tax positions • Assess operational and documentary compliance with Section 280G where relevant – e.g., shareholder approval requirements • Code Section 280G gross-ups require proxy disclosure statements under new SEC proxy disclosure rules.

19. Employee benefits • Generally exempt from income taxes therefore few issues that may trigger the application of FIN 48 • The existence of the Employee Plans Compliance Resolution System could meet the conditions of an administrative practice or precedent • Few exceptions to the general rule include: • Plan invested in UBIT triggering investments • Application of 409(p) to ESOPs

20. Health and welfare plans • General IBNR ( claims incurred but not reported) • Amount of deduction • §461 all events test • Pre-funding through VEBA to accelerate deductions for: • Claims incurred but not reported • Retiree medical • Severance • Disability • Others

21. Health and welfare plans • Determination of UBIT Liability • Structure of trust and treatment of income • Calculation of trust income used to pay administrative expenses • Distributions or items other than administrative expense?

22. Health and welfare plans • Accelerated Severance Plan Funding • Amount available for accelerated deduction • Segregated funds or not segregated funds • Retiree Medical Plans – Self Funding FAS 106 Liabilities • Segregation of FAS 106 asset • Ruling in Wells Fargo case • Qualified SUB payments • How were pre-funding and deduction determined?

23. Other Areas to Consider • 401(k) acceleration • Compensation earned based on 404(a)(6) or Notice 2002-48 special exceptions • 404(k) deduction • Statutory requirements- amount of deduction • Structure of the funding arrangement • Fringe benefits and perquisites • Corporate aircraft – consider valuation aspects, and interplay of income and deduction • Country Club memberships, tickets, suites, and corporate apartments

24. Employee benefit accounting • FAS 132(R)-a Employers’ Disclosures about Postretirement Benefit Plan Assets (proposed FSP) • Application of FAS 157 • Proposed effective date • Management responsible for fair valuation

25. IRS large plan audit initiative • The IRS has instituted changes in targeting and performing standard audits of qualified plans. The new philosophy emphasizes: • Risk-based targeting of plans chosen • A limited and focused audit methodology that expands only if noncompliance is identified • If the initial review does not yield problems and appropriate controls exist, the agent will close the audit