Stock Plan Services resources

Hi, welcome to Admin Year-End Planning Part 1.

I'm Brooke Anderson.

I'm a senior client service manager here at Charles Schwab.

This is Part 1 of a 2-part series discussing planning for your year-end processing.

Year-end is the process for closing out the current year and preparing for the new year.

So, your Client Service Team is going to guide you through the timeline, help you manage the deliverables on both sides, and offer best practices to help you to ensure a successful transition from current year into new year.

So we're going to start with talking about dispositions.

Disposition Surveys are part of year-end planning, and a disposition is a transfer of ownership of stock purchase pursuant to an option.

And when we talked about an option, we could be talking about an Incentive Stock Option, or we could be talking about an Employee Stock Purchase Plan.

So, a Disposition Survey is used to ask participants if they have disposed of shares acquired under a Section 423 Employee Stock Purchase Plan or an Incentive Stock Option exercise.

Again, these surveys are utilized only for qualified Employee Stock Purchase Plans and Incentive Stock Options.

So, if you don't have either of those, you're in the clear on these.

But also, it's important to note that for the Employee Stock Purchase Plan disposition surveys, these are dependent upon your asset restrictions and system settings.

So, if you're not sure what that means, please just make sure you have a discussion with your Client Service Manager because they will go over those settings with you and EquiView and determine if surveying is appropriate for you.

Now, it is important to note that surveying for both qualified and disqualified dispositions for Employee Stock Purchase Plans is a best practice as ordinary income that is recognized resulting from the disposition should be included in the participants W-2.

However, with Incentive Stock Options, it's only necessary to survey for disqualified dispositions.

You'll also want to coordinate with your payroll team to determine their cutoff date for W-2 processing because you're going to want to back into that.

Once you have the survey data back, you're going to want to give that information over to your payroll so that they can put the W-2 income on the participants W-2.

So, let's talk about disposition survey types and criteria.

So, for Incentive Stock Option dispositions, generally we're looking for awards granted on or after January 1st, 2 years ago, two years back or transaction dates on or after January 1st, one year ago, one year back.

And we would exclude same-day sales.

The reason for that is a same-day sale is automatically a disposition and we are going to already have that information reported back to us.

For ESPP we're going to exclude transaction types that are not treated as a disposition in your EquiView settings.

So that goes back to that conversation that you're going to have with your Client Service Manager.

And it's important to note that eliminating any effective dates will result in both qualifying and disqualifying dispositions.

So, if you're surveying for all, you're just going to exclude those non disposition transaction types and you're not going to put any date range.

However, if you are surveying for only disqualifying dispositions for ESPP, you're going to look back for offering periods with the start date on or after January 1st, 2 years ago, so two years back.

And again, you're going to exclude transaction types that are not treated as a disposition in your EquiView settings.

Now to talk through the deliverables around disposition surveying.

So, the first thing we're going to do is your Client Service Team is going to create disposition survey samples.

They're going to provide you with those samples so that you can review them.

You can ensure that the language and the instructions are accurate and that the appropriate population is included.

So, you're going to review those survey samples that are created by the Client Service Team and you're going to provide any revisions to the survey language, including return instructions and reply by dates.

Now, when we speak to revisions to the survey language, there are a couple of paragraphs that are customizable in those reports, which are generated out of EquiView return instructions such as return by dates, e-mail addresses, contact information.

That's all fine to change and then move forward.

But if you're making any revisions to customizable survey language as far as instructions or information that you're giving to the participant as part of that survey, that will have to go through a Schwab compliance review.

And that can take a bit of time, maybe five to seven days.

So, you want to make sure you have a lead time so that the Schwab team has the opportunity to bring those revisions back to compliance, get them approved and get those samples ready for you.

The second step is you're going to want to finalize the survey mailing date.

So again, another date that we're going to be backing into.

It's important to note that surveys are not paperless.

This is because a participant has to actually fill them out and scan or return them.

They are viewable. A copy of them are viewable, under statements, Equity Award Center, Letters in their Equity Award Center account, but it doesn't go paperless.

Even if they have paperless settings, even if they've requested to have paperless communications, they will still get a mailed copy.

So, you're going to want to finalize when you would like those sent out by and want to make sure that you have approved the samples and they are ready to go by your requested mailing date.

Step 3 is as those surveys start coming back to you and people are reporting sales or transactions that they've had, you're going to want to prepare a disposition import file with the data collected from those return surveys and provide it to client service for import.

Probably the easiest thing to do is to just keep a running total. Ask for that import file from your Client Service Team.

Make sure you understand how to fill it out.

And then I usually direct my clients, or you know, provide guidance to my clients that they should keep that file on hand.

And then as the surveys are coming in, just keep populating the information into that file until the last survey has been returned or you

know, you have a deadline because the W-2 processing is going to occur.

And then you provide that completed file back to Schwab so that we can import it.

And you can use reporting out of EquiView to give that information back to your payroll for W-2 processing.

So, Step 4 is after all of that information has been imported into EquiView, you're going to deliver that report to your payroll team so that they have the appropriate information.

And then when we're thinking about year-end overall, there are four key areas that you want to analyze as you prepare for your year-end, aside from disposition surveys.

That would be looking at your Participant Data, looking at Taxation, Plan Information and Upcoming Transactions.

And we're going to give more context around each of those different segments in the upcoming slides.

So first would be what are you looking at with regard to participant data?

Well, as this slide states, year-end is a great time just to make sure that your data is accurate, make sure everything is clean, make sure that you are going to have clean transaction processing in the upcoming year.

And some of the ways that you can ensure that is by making sure that all of your terminations are recorded and accurate, that you have recorded any employee type changes.

So, anyone who's gone from employee to non-employee or vice versa, leave of absence, making sure that that status is up to date, making sure that the indicators for your Insiders, Directors, Section 16 Officers, etcetera are all properly indicated in EquiView and also that you're properly managing your preclearance population in EquiView and Stock Plan Manager.

And then finally, Retirement Eligibility dates.

You might have a rule of administrative convenience that you would utilize where you have to process some retirement eligibility transaction at year end.

So you just want to audit that information and make sure that you have everything that you need to move forward.

Next, we'd be taking a look at taxation.

So when we had that overall category, you were probably thinking, what am I reviewing with regard to taxation.

So when we're thinking about taxation, what we're thinking about is making sure that your jurisdictions in the database are all up to date and have the appropriate information if there have been any changes to rates or limits for the new year.

So, you're going to look at both your subscribed jurisdictions and non-subscribed jurisdictions. What does that mean?

So firstly, everyone is subscribed, so to speak, for Federal, Federal Supplemental, base Medicare and Social Security.

So, what that means is those rates as changes are made are auto updated in the back end of our database.

You don't have to worry about providing us with, you know a Federal update or a Medicare or Social Security update.

We also do provide Baker McKenzie domestic rate guidance, and you may be a subscriber to that if you are.

What that means is when Baker McKenzie provides that guidance and we receive it, we auto update all of those domestic rates for you.

Those do not include local rates and it's important to note that although we receive international guidance, international rates are not auto updated.

We do provide you with that guidance and those rate changes and we ask you to confirm them if you'd like those changes made and then we will manually make them for you.

It's also important to know that if you have your Medicare rate split to base and surtax, two separate rates, those will not auto update.

It's just the Medicare that has the two levels, the regular Medicare and the extra .9 for over $200,000 in compensation that one will auto update.

So, if your Medicare rate is split with a base and a surtax, those have to be manually updated as well.

Locals again have to be manually updated.

And if you are a subscriber to the Baker guidance and you've opted out of any updates, maybe there are certain jurisdictions that you just want to have control over or want to review before those updates are made, then you'll also need to provide us with, with the approval that you would like that change made.

Also, if you are on the Tax Group functionality, you're definitely going to want to review your existing groups to see if any jurisdictions need to be added or removed or changed and if we need to set up any new Tax Groups for any participants for the new year.

If you're unsure about whether or not you're on Tax Group functionality, just have that conversation with your Client Service Manager and they can let you know.

We also do utilize EquiView Reporting to conduct this review, so we'll provide you with several reports that will post out to SPM that will allow you to review this information and provide your feedback.

Moving on to looking at plan information. So, when we're talking about paying attention to plan information, what we mean is it's a good time to just audit and see if there are any changes to your plan information going into the new year.

Do you have any updates to your plan share allocations?

Do you have any Evergreen provisions?

Do you need to update your returns to plan settings?

Do you have any new plans that you're going to be issuing from in the new year that we need to configure and have all of the information gathered for?

So those are some things you're going to want to pay attention to as well.

And then also taking a look at transactions.

So, when it comes to end of year transactions, timing is everything.

So, you're definitely going to want to keep anticipated year-end transaction dates in mind to make sure that we have seamless and accurate processing.

We want to make sure that we have those shares into participants accounts and you know the appropriate time frame and we want to make sure that we have adequate team coverage for approvals.

So here are some important things to note with regard to end-of-year transactions for lapse activity.

Current year activity is going to be standard processing and timelines.

However, if you have lapse activity on or after January 1st, those transactions will be processed in the new year regardless as to whether or not you use prior day close fair market value.

Now it's important to note that because that is a deviation from standard procedure.

Typically, if you have lapse activity that occurs on a non-market day and you use prior day close, that lapse will be processed the day before.

But in this case, because we're crossing calendar years, we want to keep all of the transactions to their respective years.

So, we're not going to process anything the day before and we're going to wait until we cross over into the new year to process those transactions.

For ESPP, if you have an Employee Stock Purchase Plan and you have a year-end purchase, you're definitely going to want to plan for that as well.

You're going to want to discuss your final contribution file timing, any exchange rate files if those are necessary for international purchases.

And then also just again making sure that you have adequate coverage on your side so that if any adjustments need to be made or we need approvals on our side, we have those.

When it comes to Stock Options or anything being exercised, that is standard processing and timelines.

But some important things to also consider are you in a blackout?

Are you in a company blackout for year-end?

If you are, that doesn't necessarily mean that there won't be any transactions flowing through.

So here are some considerations surrounding blackouts.

If you happen to have any terminated participants who are in their allowable exercise period.

So they've left the company, but they have a period of time at which they can exercise any outstanding shares, they may not be subject to blackout.

So those transactions could potentially be flowing through.

Also, if you allow for an Exercise and Hold transaction during a blackout, someone might elect to do that.

If you have participants with active 10b5-1 trading plans, those don't typically, you know, they don't always follow open trading windows.

So, if somebody has an active 10b5-1 trading plan, they could be transacting from that plan and those transactions can be coming through and then tax updates, transaction approval, those are necessary things that we will need coverage for.

So, if you happen to be out of the office, just make sure that either, you know, there's some way to get in touch with you or there's someone covering for you so that if that type of activity happens, we can reach out, get the necessary approvals or adjustments and settle on time.

And then some other special circumstances to consider would be Retirement Eligibility provisions.

Again, you know if you have any type of role of administrative convenience for those are processed all at once at the end of the year: Deferrals, any awards that have Transaction Holds; you'll need to review any of your awards that have Transaction Holds and determine if those should be removed by year end so that we can catch those transactions up and process them in the proper year.

And then moving on to file processing.

So, you will also have some considerations surrounding inbound files that you send into Schwab from your payroll provider.

Your Client Service Team is going to work with you to determine the best approach, but participant file import timing for the current year in the new year has to be discussed.

You'll want to discuss that both internally and with your Client Service Team, when the last payroll of the current year will be processed and when to expect the first file containing the New Year's data.

It's important to note that an automatic, automatic file import may be suppressed.

So you might be used to your payroll provider sends a file into us.

If it's error free, it goes directly into EquiView Live.

There's no, you know, stopping and staging or reviewing the data or anything like that.

If we suppress the automation, every record that comes through on that inbound file stops in staging.

And normally we will do this around year end just so that we can review that inbound data and make sure that the year-to-date buckets that are coming through have the appropriate year's information in those buckets.

Sometimes when crossing calendar years, if the payroll, you know, also crosses those calendar years, we could be receiving the current year data in the new year.

And if those year-to-date buckets are populated with incorrect data, that could have some downstream impacts on transaction processing.

An example of that might be somebody has maxed out in the current year in their Social Security, so they've had the max amount withheld that comes through New Year when they haven't paid into Social Security at all yet.

Now if they have a transaction, the transaction is going to base it against the number that is in that bucket and not realize that it's from the prior year and you could potentially have incorrect withholding or you know, Social Security tax in this example would not be withheld.

So, it is important that we have the appropriate year to date information for each participant and that it stays in the respective years.

So as a result of that, for a little bit of time, the automatic file import may be suppressed.

We'll be reviewing those files daily or however often you send them.

And then once it's determined that clean current year, your data is flowing through, we'll turn that automation back on.

So, work with your payroll provider as well if you can, just to ensure clean data is coming through for all participants.

This might involve zeroing out terminated individuals' year to date values in the new year.

So, if this is a possibility at all, get a head start on that conversation with your payroll provider.

And then finally, you just want to plan ahead for upcoming holidays and market closures.

There are days that Schwab is closed, there's days that the market is closed.

And then there's also days that you might be closed or you might be taking time off that the market is open.

So, keep in mind that if the market is open, there could potentially be transactions.

We just definitely want to make sure that we have the appropriate coverage for those.

So have those discussions with your Client Service Team and then if you need this information at any time, ask your Client Service Manager.

They can provide you with a list of the upcoming holidays, market closures and the Schwab closures.

Thank you.

We appreciate you paying attention to this important information.

And as mentioned in the beginning, your Client Service Team is going to be walking through all of this information with you start to finish to make sure that you have a successful transition from current year into new year.

Thank you.

Hi, welcome to Admin Year-End Planning Part 2.

I'm Brooke Anderson.

I'm a Senior Client Service Manager here at Charles Schwab.

This is the second part of a two-part series to cover year-end planning.

What is Year-End Planning?

Year-end is the process for closing out the current year and preparing for the new year.

So your Client Service Team is going to guide you through each of these deliverables that we're about to discuss and their timeline.

Here are some of the items that we're going to cover today.

Some of these items were touched upon in Part 1, if you've had a chance to review that, but this is going to be a refresher.

We're going to talk about Upcoming Transactions, File Processing, Tax Updates, and Year-End Statements, IRS Section 6039 Reporting and FIRE Files.

So, starting with Transaction Processing, discuss any upcoming lapse transactions with your Client Service Team for planning purposes.

And keep in mind that there will be standard processing and timelines for your current year's activity.

You'll want to review any awards on Transaction Hold for transactions that should be processed in the current year.

If you're unsure what that means, just have a discussion with your Client Service Manager about it.

They will help you identify if any awards are on Transaction Hold and then it can be determined as to whether or not that hold needs to be removed.

Also keep in mind if you have the Rule of Administrative Convenience around Retirement Eligibility and/or Deferrals, you'll want to keep that in mind and you're going to want to look at your retirement eligible individuals and any awards which have deferrals to be processed.

It's also important to note that lapse activity occurring on or after January 1st of the new year will be processed in the new year even if you're using a prior day fair marketed value.

This is important to point out because it is a deviation from standard.

Typically, if you had a lapse transaction that was occurring on a non-market day such as a weekend or a holiday and you use prior day fair market value, we would go ahead and process that transaction the day before.

But when it comes to crossing calendar years, we want to keep the transactions for each of the calendar years in their respective years.

And so, in that case, anything that has the new year date is going to be processed in the new year.

Now for exercise activity, that's something that's a little more difficult to plan for obviously, because you don't typically know when someone is going to take action and transact from an exercise perspective.

However, some things to consider would be that we are going to have standard processing and timelines for any exercise activity and you would need to plan for possible tax updates or adjustments and transaction approvals.

So, if you have scheduled time off or your company is closed when the market is open, just make sure that we have somebody that we can reach out to obtain those necessary approvals or any updates that are required.

And then also some blackout considerations.

If you happen to be in a company blackout around year-end, which you know could be common, you're going to want to make sure that you understand that you could potentially have terminated participants that are in their allowable exercise period.

And are not subject to blackouts.

So, let's just say you have a blackout and you don't allow any type of transactions at all, not even an Ex and Hold.

That doesn't necessarily mean that you're out of the woods on transactions flowing in.

Because if you do have any of these terminated participants that are not subject to blackout at all and are in their allowable exercise period they could sneak a transaction in before the year-end.

And you know, we just need to make sure that we can settle that appropriately just like we would for any other type of transaction.

And then also for Exercise and Hold, if you do allow that during a blackout, there could be people that are deciding to take that option and transact.

And then finally for 10b5-1 transactions, if you have anybody that's in in active 10b5-1 trading plan, those may not necessarily fall during open trading windows.

So, if any of those transactions are coming through, those would need the necessary approvals and adjustments if necessary as well.

And then if you happen to have an Employee Stock Purchase Plan, not everyone does, but if you do and there is a purchase taking place during late December or early January, it's important to note that we are going to follow standard processing timelines.

You'll want to ensure that you have the appropriate coverage, just like you would for exercise or lapse transactions for approvals of these purchases and any necessary changes or adjustments.

And this will ensure timely settlement to get those shares into participant accounts.

You'll want to also confirm the delivery date for your last contribution file and confirm a delivery date for an exchange rate file if necessary for any international participants that would be purchasing.

And you'll want to ensure that all terminations for the current year are up to date in EquiView.

So, we don't have anyone purchasing that should not be.

We had mentioned in part one that EquiView will reset participant year-to-date tax data effective January 1st.

So you want to confirm your delivery dates for your final year-to-date payroll file as well as your final HRIS file.

Now those might be combined, that might be one file, or you might have it split out into two.

We will need to know when to expect those as well as the first files of the new year.

Payroll files that are sent to Schwab in the new year should reflect the current year-to-date amounts.

So just a reminder that terminated participants may be within their allowable exercise periods as we cross into the new year.

So, you'll want to meet, you'll want to pay special attention to the year-to-date values because those may not be updated by your payroll provider.

If somebody leaves the company typically you know payroll processing stops there, and they could have a stagnant number in that year-to-date bucket.

For example, if they have maxed out in Social Security in the current year and now, we've moved into a new year, that value isn't going to

change in that inbound file because payroll is no longer processing for them.

So they may not reset them.

And if that value comes into EquiView in the in the new year, it could have downstream impact on any transactions that they may have.

So again, you know, if somebody has maxed out on Social Security in the current year, now we're in the new year and we have that value, the Social Security withholding will not be properly reflected.

That's just one example.

It could also have downstream impact if you have incorrect year to date supplemental comp values or total comp values.

So just make sure that you keep an eye on that and discuss that with your payroll provider if possible.

Maybe they can zero those individuals out on their side.

And then moving on to Tax Jurisdiction Updates, you're going to want to work with your Client Service Team to review your current tax rates and limits ahead of the upcoming equity activity.

So, for Tax Jurisdictions, you'll want to review your current rates and limits.

Keep in mind that certain Federal, Social Security and Medicare jurisdictions are going to be updated automatically if any changes are necessary, but any non-subscribed, and or local jurisdiction changes must be provided to your Client Service Team as these are not updated automatically.

If you are in Tax Groups and if you're not sure, check with your Client Service Manager.

But if you are on Tax Groups, you'll also want to review your Tax Group data and determine if any updates need to be made to the Tax Groups or if any new Tax Groups need to be constructed.

Baker McKenzie guidance is provided early Q1.

If you have elected to utilize Baker McKenzie subscribed to jurisdictions. Any changes that they have provided to domestic rates will be made automatically, but international rate or threshold changes need to be requested separately, as these do not update automatically as well as locals.

Moving on to some new information for Year-End Planning and that would be Year-End Statements.

So, there are some statements that can be provided via EquiView to your participants as part of year-end so that can they can have some assistance with preparing their tax returns.

So, your Client Service Managers are going to review the available statements with you and they'll want to coordinate the timing of the delivery to the participants when you want those statements to go out.

This slide captures a couple of the more commonly used statements for year end.

The first one would be the Annual Withholding Statement.

This one captures any equity transactions for the specified tax year and includes tax withholding breakdowns for exercises and lapses.

Then there's the Total Equity Activity statement.

The difference with this statement is that it captures both the equity transactions and ESPP transactions.

So, disposition activity such as sales, transfers, gifts, etcetera.

It includes the tax withholding breakdown for your exercises and lapses.

It includes the Adjusted Cost Basis for your ESPP dispositions.

And it also allows for a customizable date range.

So, if you didn't want to run from January 1st to December 31st, for example, and you had another special type of breakdown that you wanted to see in those statements, you can provide that customizable date range.

Moving on to IRS Section 6039 Reporting, there are two parts to this.

So, the first part is providing the substitute Forms 3921 and 3922 to your participants.

Your Client Service Managers can generate these out of EquiView and provide them by mid-January to remain compliant with the Section 6039 reporting requirements.

The Substitute Form 3921 is provided to participants who had ISO so Incentive Stock Option exercises in the calendar year. Those forms have to be postmarked by January 31st.

And then the Substitute Form 3922 is for any participants who had ESPP purchases in the calendar year and those need to also be postmarked by January 31st.

The second part of Section 6039 IRS Reporting is the FIRE Files.

This is the actual file that gets reported to the IRS that includes all that ISO exercise activity and ESPP purchased activity.

So that's what you're actually reporting to the IRS and the forms are telling the participant, this is what I'm going to be reporting to the IRS.

So, your Client Service Managers are also going to provide you with FIRE files that you can then report to the IRS.

There are two files that they can provide.

The first one would be a test file because the IRS does provide a FIRE test system that allows you to file the test file and make sure that it's error free and that everything goes through as expected.

That test site is available in early January and there really isn't a deadline for submitting a test.

The final FIRE file is the one the company is.

Your company is going to post to the IRS FIRE production system.

That production site is available in mid-January and there is an IRS deadline for that.

It is March 31st if you're filing electronically.

February 28th is the deadline if you're filing by paper, which is only allowed for 10 returns or less.

I haven't seen many companies that have 10 or less, but if you happen to have that, you need to keep in mind that if you are filing paper returns, your deadline is a little bit earlier, February 28th.

So, you'll want to back into that.

And then finally, you just want to plan accordingly for your upcoming holidays and market closures.

Again, there are some days that Schwab is going to be closed for the holiday, the market is going to be closed.

But we do know that this is the time of year that many people take time off or your company may have a shutdown, or you might have closures on days that aren't necessarily recognized holidays or market holidays.

And the reason why you'll want to pay attention to this is, again, just for planning purposes, to make sure that you have coverage for any approvals or adjustments that might be required.

If you need a snapshot of this, you know, please ask your Client Service Manager.

They can put it into your Open Items log or they can provide you with this so that you can keep it on hand and know when to expect a closure or market holiday.

I want to thank you for taking the time to pay attention to this important information and please do keep in mind that your client service manager is here to guide you through all of this start to finish and keep you to task as far as any deadlines or deliverables.

So please feel free to lean on them and ask any questions or bring any concerns to them that you may have.

I thank you and wish you a successful year-end transition.

Have a great day.