Summary
This 8-K filing from Honeywell International Inc. (HON) reports on significant amendments made to its employee benefit plans, specifically the Salary and Incentive Award Deferral Plan and two Supplemental Non-Qualified Savings Plans. These changes, approved by the Management Development and Compensation Committee on July 29, 2005, are primarily designed to ensure compliance with Section 409A of the Internal Revenue Code, which governs deferred compensation. The amendments aim to simplify administration and potentially reduce long-term costs for the company.
Key Highlights
- 1Honeywell amended key employee benefit plans to comply with Section 409A of the Internal Revenue Code.
- 2The amendments merge two Supplemental Non-Qualified Savings Plans into a single 'Merged Savings Plan'.
- 3Future deferral elections for base annual salary under the Deferral Plan will be eliminated.
- 4The maximum percentage of base salary that can be deferred under the Merged Savings Plan is increased from 17% to 25%.
- 5The interest rate crediting mechanism for deferred amounts is changing from an annually set rate to a fixed rate based on the company's borrowing cost for a 15-year term.
- 6Certain participants will receive vested and distributed unvested notional interest for amounts deferred between 2002 and 2005.
- 7Distribution forms are limited to a lump sum or, for retirees, two to ten annual installments, with payments commencing as of the first January post-termination permitted by Section 409A.
Frequently Asked Questions
The primary reason for the amendments is to ensure compliance with Section 409A of the Internal Revenue Code, which imposes new regulations on nonqualified deferred compensation plans. The changes also aim to simplify plan administration and reduce long-term costs for the company.
Employees will no longer be able to elect to defer future base annual salary under the Deferral Plan. The two savings plans are being merged, and the maximum deferral percentage for base salary is increasing to 25%. The interest crediting method and distribution options are also being revised. Unvested notional interest for certain prior deferral periods will be distributed.
The amendments are generally effective for amounts deferred on or after January 1, 2006. Some distributions related to prior deferral periods are being made sooner.
Section 409A of the Code, enacted as part of the American Jobs Creation Act of 2004, provides specific rules for the taxation of nonqualified deferred compensation. Failure to comply with these rules can result in significant tax penalties for participants.