Unfortunately, the board later learned that many of these reports and assurances were, in fact, false. Thus, the issue here is not the board's proper oversight of this situation, but the integrity and honesty of key Enron senior officers — which many observers have now concluded were completely absent — and the forthrightness of Enron's advisers, who failed to inform the board about their concerns.
Dimitri J. Nionakis
Partner
Howrey Simon Arnold & White
Washington, D.C.
Premature Obit
Your article "The Danger of Deferrals" (Newswatch, April) captured our attention. As a provider of customized nonqualified plans, we at TBG Financial believe that your obituary of deferred-compensation plans is premature. While Section 409A of the Internal Revenue Code establishes new rules for the operation of deferred-compensation plans, in many ways it can be viewed as legitimizing and structuring what hitherto had been a gray area.
Your article suggests that Section 409A creates a major disincentive to defer because salary elections need to be made before the beginning of the year, while performance-based compensation must be deferred at least six months before the end of the earning period. Yet, 409A provides a more relaxed standard than that utilized by most of our clients before the legislation, when bonus deferrals were generally solicited in the year prior to being earned. Contrary to your article, 409A still permits participants to schedule distributions while employed — they don't have to wait until separation from service. This feature is an excellent way for participants to schedule and pay for certain planned activities, such as a child's education.
Clearly, by the end of 2005, plans will need to comply with Section 409A for deferrals earned and vested after December 31, 2004. Some company plans and recordkeeping processes may require significant amendment, but for most of our clients, the changes are fairly minor.
Howard J. Wilson
Executive Vice President and Chief Operating Officer
TBG Financial
Los Angeles
A Simple Yardstick
As a retired chief executive/vice president/general manager with almost four decades of experience in manufacturing for the consumer-electronics industry, I suggest that the Financial Accounting Standards Board adopt the following simple yardstick for revenue recognition ("Proper Recognition," Newswatch, April): "An invoice may be recognized as revenue on the operating statement no sooner than 90 days after the collection of the cash."
Think about it.
Edgar A. Sack
Coronado, California
Correction:
Our June Spotlight on Insurance ("Infinite Risk?") incorrectly described the impact of a finite-insurance transaction with General Reinsurance on American International Group's financial results. The article should have stated that the transaction inflated AIG's reserves and other assets by $495 million, not its shareholder equity by $1.8 billion. Also, the article should have stated that, of the 524 active captive subsidiaries domiciled in Vermont, 5 or 6 were estimated to use finite insurance, not that those 5 or 6 were captives.
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