Large board salaries deemed a misunderstanding

Rumors have been swirling around the counties served by the Santee Electric Cooperative regarding salaries paid to board members.

According to an IRS 990 filing in 2008, some board members were paid as much as $187,071, bringing many questions as to compensation for SEC board members.

According to SEC CEO Floyd Keels, the reported compensation was due to the termination of a non-qualified, self-funded retirement program that was offered to employees and board members in 1989.

The plan was created to allow employees and board members to defer compensation pre-tax and then, like most retirement plans, allow contributors to withdraw the funds at a lower tax rate.

Following the collapse of Texas energy giant Enron in 2001, the Internal Revenue Service disallowed the type of deferred compensation that both SEC and Enron were utilizing.

“Our auditors reviewed our plan in conjunction with a tax expert and told us we had three options,” Keels explained.

“We could keep the plan with SEC, but we would have to pay the taxes on the funds held. We did not want to do that, as those costs would have had to be passed on to our customers.

“We could assign the plan funds over to the holder of the account, and they would have had to pay the taxes from the held funds and any future funds contributed.

“Or we could simply terminate the plan and disburse any funds being held in the contributor’s name to the contributor,” Keels said.

When option three was selected, those funds became “salary” for the holder and were reported on the 990 form, a type of IRS tax return for not-for-profit organizations.

A review of the same filing for 2007 and 2006 show no compensation of this magnitude.

Keels said he believed that board members were “vested” in the program at the end of their second term of service, which accounted for the varying amounts.

According to Keels, salaries for SEC board members are set using comparative studies from other utility companies of a similar size and nature.

Each board member receives $450 per meeting of the 70-plus year old company.