I
107TH CONGRESS
2D SESSION
H. R. 5088
To amend the Internal Revenue Code of 1986 to encourage more responsible
corporate governance.
IN THE HOUSE OF REPRESENTATIVES
JULY 10, 2002
Mr. MATSUI (for himself, Mr. GEPHARDT, Ms. PELOSI, Mr. RANGEL, Mr.
NEAL of Massachusetts, and Mr. DOGGETT) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to encourage
more responsible corporate governance.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Executive Account-
ability Act of 2002’’.
SEC. 2. PERFORMANCE-BASED COMPENSATION EXCEPTION
TO $1,000,000 LIMITATION ON DEDUCTIBLE
COMPENSATION NOT TO APPLY IN CERTAIN
CASES.
(a) IN GENERAL.—Paragraph (4) of section 162(m)
of the Internal Revenue Code of 1986 is amended by add-
ing at the end the following new subparagraph:
‘‘(G) CERTAIN FACTORS NOT PERMITTED
TO BE TAKEN INTO ACCOUNT IN DETERMINING
WHETHER PERFORMANCE GOALS ARE MET.—
Subparagraph (C) shall not apply if, in deter-
mining whether the performance goals are met,
any of the following are taken into account:
‘‘(i) Cost savings as a result of
changes to any qualified employer plan (as
defined in section 4972(d)).
‘‘(ii) Excess assets of such a plan or
earnings thereon.
‘‘(iii) Any excess of the amount as-
sumed to be the return on the assets of
such a plan over the actual return on such
assets.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 3. INCLUSION IN GROSS INCOME OF FUNDED DE-
FERRED COMPENSATION OF CORPORATE IN-
SIDERS IF CORPORATION FUNDS DEFINED
CONTRIBUTION 
PLAN 
WITH 
EMPLOYER
STOCK.
(a) IN GENERAL.—Subpart A of part I of subchapter
D of chapter 1 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new section:
‘‘SEC. 409A. DENIAL OF DEFERRAL FOR FUNDED DEFERRED
COMPENSATION OF CORPORATE INSIDERS IF
CORPORATION FUNDS DEFINED CONTRIBU-
TION PLAN WITH EMPLOYER STOCK.
‘‘(a) IN GENERAL.—If an employer maintains a de-
fined contribution plan to which employer contributions
are made in the form of employer stock and such employer
maintains a funded deferred compensation plan—
‘‘(1) compensation of any corporate insider
which is deferred under such funded deferred com-
pensation plan shall be included in the gross income
of the insider or beneficiary for the 1st taxable year
in which there is no substantial risk of forfeiture of
the rights to such compensation, and
‘‘(2) the tax treatment of any amount made
available under the plan to a corporate insider or
beneficiary shall be determined under section 72 (re-
lating to annuities, etc.).
‘‘(b) FUNDED DEFERRED COMPENSATION PLAN.—
For purposes of this section—
‘‘(1) IN GENERAL.—The term ‘funded deferred
compensation plan’ means any plan providing for the
deferral of compensation unless—
‘‘(A) the employee’s rights to the com-
pensation deferred under the plan are no great-
er than the rights of a general creditor of the
employer, and
‘‘(B) all amounts set aside (directly or in-
directly) for purposes of paying the deferred
compensation, and all income attributable to
such amounts, remain (until made available to
the participant or other beneficiary) solely the
property of the employer (without being re-
stricted to the provision of benefits under the
plan), and
‘‘(C) the amounts referred to in subpara-
graph (B) are available to satisfy the claims of
the employer’s general creditors at all times
(not merely after bankruptcy or insolvency).
Such term shall not include a qualified employer
plan.
‘‘(2) SPECIAL RULES.—
‘‘(A) EMPLOYEE’S RIGHTS.—A plan shall
be treated as failing to meet the requirements
of paragraph (1)(A) unless—
‘‘(i) the compensation deferred under
the plan is paid only upon separation from
service, death, or at a specified time (or
pursuant to a fixed schedule), and
‘‘(ii) the plan does not permit the ac-
celeration of the time such deferred com-
pensation is paid by reason of any event.
If the employer and employee agree to a modi-
fication of the plan that accelerates the time for
payment of any deferred compensation, then all
compensation previously deferred under the
plan shall be includible in gross income for the
taxable year during which such modification
takes effect and the taxpayer shall pay interest
at the underpayment rate on the underpay-
ments that would have occurred had the de-
ferred compensation been includible in gross in-
come when deferred.
‘‘(B) CREDITOR’S RIGHTS.—A plan shall
be treated as failing to meet the requirements
of paragraph (1)(B) with respect to amounts
set aside in a trust unless—
‘‘(i) the employee has no beneficial in-
terest in the trust,
‘‘(ii) assets in the trust are available
to satisfy claims of general creditors at all
times (not merely after bankruptcy or in-
solvency), and
‘‘(iii) there is no factor (such as the
location of the trust outside the United
States) that would make it more difficult
for general creditors to reach the assets in
the trust than it would be if the trust as-
sets were held directly by the employer in
the United States.
‘‘(c) CORPORATE INSIDER.—For purposes of this sec-
tion, the term ‘corporate insider’ means, with respect to
a corporation, any individual who is subject to the require-
ments of section 16(a) of the Securities Exchange Act of
1934 with respect to such corporation.
‘‘(d) OTHER
DEFINITIONS.—For purposes of this
section—
‘‘(1) PLAN INCLUDES ARRANGEMENTS, ETC.—
The term ‘plan’ includes any agreement or arrange-
ment.
‘‘(2) SUBSTANTIAL RISK OF FORFEITURE.—The
rights of a person to compensation are subject to a