Rule 701 Form S-8 Technical Amendments PRA Supporting Statement.Final(1)

SUPPORTING STATEMENT FOR PROPOSED RULES
UNDER THE SECURITIES ACT OF 1933
This submission, pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C. §3501, et
seq., consists of this supporting statement and Release No. 33-10891.
A.

JUSTIFICATION
1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

In Release No, 33-10891,1 the Commission proposed amendments to Rule 701 and Form
S-8 under the Securities Act of 1933. Form S-8 sets forth the disclosure requirements for a
registration statement for securities to be offered by an issuer that is subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) (a “reporting issuer”) under an employee benefit plan to its employees, or employees of a
subsidiary or parent company, to help such investors make informed investment decisions. Rule
701 provides an exemption from registration for offers and sales of securities pursuant to certain
compensatory benefit plans and contracts relating to compensation by an issuer that is not subject
to the reporting requirements of the Exchange Act (a “non-reporting company”). Issuers
conducting compensatory benefit plan offerings in excess of $10 million in reliance on Rule 701
during any consecutive 12-month period are required to provide plan participants with certain
disclosures, including financial statement disclosures. This disclosure constitutes a collection of
information. A copy of Commission Release No. 33-10891, which contains the proposed
amendments, is attached.
The proposed amendments contain “collection of information” requirements within the
meaning of the Paperwork Reduction Act of 1995. The titles for the affected collections of
information are:
Rule 701 (OMB Control No. 3235-0522); and
Form S-8 (OMB Control No. 3235-0066).
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

The purpose of the proposed amendments is to modernize the two principal means by
which issuers grant securities to employees in compensatory transactions.
The proposed amendments would revise Rule 701 to:


Provide that, if the aggregate sales price or amount of securities sold during any
consecutive 12-month period exceeds $10 million, the issuer must deliver to investors the

1

Modernization of Rules and Forms for Compensatory Securities Offerings and Sales , Release No. 33-10891 (Nov.
24, 2020) 85 FR 80232 (the “Proposing Release”).

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additional disclosure required by the rule only for sales that exceed the rule’s $10 million
threshold;


Reduce the frequency at which Rule 701(e) financial statements must be updated to no
more frequently than on a semi-annual basis;



Allow foreign private issuers that are eligible for the exemption from Exchange Act
registration provided by Exchange Act Rule 12g3-2(b)2 to provide financial statements
prepared in accordance with home country accounting standards without reconciliation to
U.S. GAAP, if financial statements prepared in accordance with U.S. GAAP or IFRS as
issued by the IASB are not otherwise available;



Allow issuers to provide an independent valuation report of the securities’ fair market
value as determined by an independent appraisal consistent with the rules and regulations
under Internal Revenue Code Section 409A,3 in lieu of financial statements;



Raise two of the three alternative regulatory ceilings that cap the overall amount of
securities that an issuer may sell pursuant to the exemption during any consecutive 12month period; and



Expand eligibility to specified consultant entities, employees of all subsidiaries, and
specified former employees of the issuer and acquired companies.
The proposed amendments would revise Form S-8 to:



Clarify that issuers may add multiple plans and allocate securities among multiple plans
on a single Form S-8;



Permit addition of securities or classes of securities by automatically effective posteffective amendment;



Permit registration of an indeterminate amount of securities for defined contribution
plans;



Implement a new fee calculation and payment method for defined contribution plans;



Conform S-8 instructions to current Internal Revenue Service review practices and
eliminate the requirement to describe the tax effects of plan participation on the issuer;
and

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17 CFR § 230.12g3-2(b).

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26 U.S.C. § 409A (“IRC Section 409A”).

2



Expand eligibility to specified consultant entities and specified former employees of the
issuer and acquired companies.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the proposed amendments would affect
Securities Act registration statements on Form S-8. These forms are filed electronically with the
Commission using the Commission’s Electronic Data Gathering and Retrieval (EDGAR) system.
Under Rule 701 and the proposed amendments, the information to be collected is
provided to the investors in the compensatory plan and is not provided to the Commission. The
information may be electronically transmitted to investors.
4.

DUPLICATION OF INFORMATION

We believe that the proposed amendments would not duplicate, overlap, or conflict with
other federal rules.
5.

REDUCING THE BURDEN ON SMALL ENTITIES

The proposed amendment to Rule 701 may potentially affect any non-reporting issuer, its
parents, its subsidiaries or subsidiaries of its parent, that offer and sell securities under
compensatory benefit plans or written agreements relating to compensation. This group of
issuers includes small entities. The proposed amendments will reduce the economic burden
associated with Rule 701 for those issuers that sell securities in compensatory benefit plans in
excess of $10 million over a 12-month period.
The proposed amendments to Form S-8 will affect some issuers that are small entities and
are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
The Commission estimates that there are approximately 52 currently reporting issuers
that filed a Form S-8 in 2019 that qualify as small entities that would be eligible to rely on the
proposed amendments, but lacks sufficient data to similarly estimate the number of small, nonreporting issuers that may be affected.
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

Rule 701 was adopted under the Securities Act and sets forth the requirements for nonreporting companies to conduct compensatory securities offerings on a basis that is exempt from
the registration requirements of the Securities Act. If a non-reporting issuer sells in excess of
$10 million of securities during a 12-month period pursuant to a compensatory offering and does
not provide investors the disclosure required by the rule, the Rule 701 exemption from
registration is not available for that offering.
Form S-8 sets forth the disclosure requirements for statements for compensatory
offerings by reporting issuers to help investors make informed investment decisions. This
disclosure must be provided to comply with the requirements of the Securities Act.

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7.

SPECIAL CIRCUMSTANCES

There are no special circumstances in connection with these amendments.
8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

The Commission issued a Concept Release soliciting comment on the topics addressed by
the Proposing Release. 4 The Concept Release did not solicit comment on “collection of
information” requirements and associated paperwork burdens. Comments on the Commission’s
releases are generally received from registrants, investors, and other market participants. In
addition, the Commission and staff participate in an ongoing dialogue with representatives of
various market participants through public conferences, meetings and informal exchanges. The
Commission considers all comments received. Comments received on the Concept Release are
available at https://www.sec.gov/comments/s7-18-18/s71818.htm.
Commission staff consulted with staff of the Department of Treasury regarding aspects of
the proposal that relate to the requirements of IRC Section 409A and Internal Revenue Service
review practices for tax-qualified compensatory plans.
9.

PAYMENT OR GIFT TO RESPONDENTS

No payment or gift to respondents.
10.

CONFIDENTIALITY

All documents submitted to the Commission are available to the public
11.

SENSITIVE QUESTIONS

No information of a sensitive nature will be required under the following collection of
information in connection with these rulemaking amendments: Form S-8 basic personally
identifiable information (PII) that may include a name and job title. However, the agency has
determined that this information collection does not constitute a system of record for purposes of
the Privacy Act. Information is not retrieved by a personal identifier. In accordance with
Section 208 of the E-Government Act of 2002, the agency has conducted a Privacy Impact
Assessment (PIA) of the EDGAR system, in connection with this collection of information. The
EDGAR PIA, published on February 5, 2020, is provided as a supplemental document and is
also available at https://www.sec.gov/privacy
No information of a sensitive nature, including social security numbers, will be required
under this collection of information. Rule 701 does not collect personally identifiable
information (PII). The agency has determined that a system of records notice (SORN) and
privacy impact assessment (PIA) are not required in connection with the collection of
information

4

Concept Release on Compensatory Securities Offerings and Sales, Release No. 33-10521 (July 18, 2018) [83 FR
34958] (“Concept Release”).

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12. and 13.

ESTIMATE OF HOUR AND COST BURDENS

The paperwork burden estimates associated with the proposed rule amendments include
the burdens attributable to collecting, preparing, reviewing and retaining records. We expect that
the impact of the proposed amendments will be a reduction in the paperwork burden for all
issuers, including small entities.
The proposed amendments to Form S-8 will clarify that issuers may add multiple plans
and allocate securities among multiple plans on a single Form S-8; permit addition of securities
or classes of securities by automatically effective-post effective amendment; permit registration
of an indeterminate amount of securities for Defined Contribution Plans; and implement a new
fee calculation and payment method for Defined Contribution Plan. We expect that these
proposed amendments will reduce the number of initial Forms S-8 filed annually, and
correspondingly increase the number of post-effective amendments to Form S-8 filed annually,
and the net effect to be no change in the PRA burden per response and no change in the number
of responses.
We expect that the proposal to conform Form S-8 instructions to current IRS plan
review practices and eliminate the requirement to describe the tax effects of plan participation on
the registrant will decrease the PRA burden per response by 1 hour. We expect that the proposal
to expand eligibility to specified consultant entities and specified former employees of the
registrant and acquired companies will result in no change in the PRA burden per response or the
number of responses.
Elimination of the requirement to provide Rule 701(e) disclosure to investors who
purchase before the $10 million threshold is crossed would permit issuers who did not provide
such disclosure to continue relying on the exemption after crossing the $10 million threshold. It
would also allow issuers to avoid providing such disclosure as a precautionary measure in
offerings where it is unclear whether the threshold will be crossed. We expect the net effect on
the number of responses to be 40 additional responses, with no change in the PRA burden per
response.
The proposed amendments also would reduce the frequency of Rule 701(e) financial
statement updates; allow Rule 12g3-2(b) eligible foreign private issuers to disclose financial
statements that are not reconciled to U.S. GAAP; and allow issuers to disclose valuation
information consistent with IRC Section 409A rather than financial statements. We expect these
proposals to decrease PRA burden per response by 0.5 hours.
We expect no change in PRA burden per response or number of responses from the
proposals to increase the assets cap to 25% and increase dollar cap to $2 million and expand
eligibility to specified consultant entities, employees of all subsidiaries, and specified former
employees of the issuer and acquired companies.
The table below illustrates the expected incremental change to the annual compliance
burden of the affected collection of information, in hours and in costs. The burden estimates
were calculated by multiplying the estimated number of responses by the estimated average
amount of time it would take a registrant issuer to prepare and review the disclosure. For
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purposes of the PRA, we estimate that for Rule 701, 25% of the burden of preparation is carried
by the issuer internally, which is reflected in hours, and that 75% of the burden is attributed to
outside costs. For Form S-8, we estimate that 50% of the burden of preparation is carried by the
issuer internally, which is reflected in hours, and that 50% of the burden is attributed to outside
costs. For both rules, we estimate $400 per hour as the average cost of retaining outside
professionals.
Table 1.
Collection
of
Information

Number of
Estimated
Affected
Respondents
(A)

Form S-8

Collec
-tion
of
Informatio
n

Current
Annual
Response
s
(A)

230

Burden
Hour
Annual
Decrease
per
Affected
Responde
nt

Burden
Hour
Annual
Decrease
Per
Affected
Respondent

Decrease in
Burden
Hours For
Affected
Respondents

Decrease in
Internal
Burden
Hours for
Affected
Respondents

(B)

(C) = (A) x
(B)

(D) = (C) x
0.5 or 0.25

(1)

(230)

(115)

Decrease in
Burden
Hours for
Current
Responden
ts

Increase in
Number of
Affected
Responden
ts
(D)

(C) = (A) x
(B)

(B)
Rule
701

800

(0.5)

(400)

40

Decrease in
Professional
Hours for
Affected
Respondents

Decrease in
Professional
Costs for
Affected
Respondents

(E) = (C) x
0.5 or 0.75

(F) = (E) x
$400

(115)

($46,000)

Burden
Hour
Increase
From
Additional
Responden
ts

Total
Decrease in
Burden
Hours for
All
Responden
ts

Decrease in
Internal
Burden
Hours for
All
Responden
ts

(E) = (D) x
1.5

(F) =
(C)+(E)

(G) = (F) x
0.25

60

(340)

(85) 5

Decrease in
Professiona
l Costs for
All
Responden
ts
(H) = (F) x
0.75 x $400

($102.000)6

5

This represents a reduction of (.25 X 400) in the burden hours of the existing 800 respondents,
as the PRA burden per response declines from 2 to 1.5 hours, plus (40 X 1.5 X .25) for the additional burden hours
attributable to 40 additional responses. The math calculation for the 800 respondents existing burden hours is 400100=300, then the calculation for the reduction of the total hours per response from 2 to 1.5 is (40 x 1.5 x 0.25) =15
for the additional 40 respondents. The incremental burden calculation for the reduction for existing burden hours is
reduction of (100) + 15(new increase for additional 40) = (85).
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This represents $120,000 reduction in existing cost for existing 800 respondents, plus $18,000 additional cost from
adding 40 responses. 0.75 X 400 X $400 = ($120,000) + (40 x 1.5 x .75) = $18,000 = $102,000.

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14.

COSTS TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including registration
statements, post-effective amendments, proxy statements, annual reports and other filings of
operating companies amounted to approximately $103,479,690 in fiscal year 2019, based on the
Commission’s computation of the value of staff time devoted to this activity and related
overhead.
15.

REASON FOR CHANGE IN BURDEN

As explained in further detail above, the proposed amendments to Rule 701 and Form S-8
are designed to modernize the exemption and registration statement in light of the significant
evolution in compensatory offerings since the Commission last substantively amended these
regulations, consistent with investor protection. The proposed amendments will reduce the
burden for issuers making compensatory offerings under both Rule 701 and Form S-8. Table 2
below illustrates the changes in hour burden estimates currently approved by OMB.

Table 2.
Form

Current Burden

Program Change

Requested Change in Burden

Current
Annual
Responses

Current
Burden
Hours

Current Cost
Burden

Number
of
Affected
Responses

Change in
Company
Hours

Change in
Professional
Costs

Requested
Annual
Responses

Requested
Burden
Hours

Cost Burden

(A)

(B)

(C)

(D)

(E)

(F)

(G)

(H)

(I)

Form S-8

2,140

28,890

$11,556,000

230

(115)

($46,000)

2,140

28,775

$11,510,000

Rule 701

800

400

$480,000

840

(85)

($102,000)

840

315

16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES

The information collections do not employ statistical methods.

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$378,000

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of the form.
Including the expiration date on the electronic version of the form will result in increased costs,
because the need to make changes to the form may not follow the application’s scheduled
version release dates. The OMB control number will be displayed.
The Commission is not seeking approval to omit the expiration date for Rule 701.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS

There are no exceptions to certification for the Paperwork Reduction Act submissions.
B.

STATISTICAL METHODS
The information collections do not employ statistical methods.

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Rule 701 Short Statement
The proposed amendments to Rule 701 under the Securities Act of 1933 would reduce an
issuer’s paperwork burden by reducing the frequency of Rule 701(e) financial statement updates;
allowing Exchange Act Rule 12g3-2(b) eligible foreign private issuers to disclose financial
statements that are not reconciled to U.S. GAAP; and allowing issuers to disclose valuation
information consistent with IRC Section 409A rather than financial statements. For purposes of
the PRA, we estimate that, for Rule 701, the proposed amendments would result in a reduction of
85 internal burden hours and a reduction in the cost burden of $102,000 for the services of
outside professionals.

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Form S-8 Short Statement
The proposed amendments to Form S-8 under the Securities Act of 1933 would reduce a
registrant’s paperwork burden by conforming Form S-8 instructions to current IRS plan review
practices and eliminating the requirement to describe the tax effects of plan participation on the
registrant. For purposes of the PRA, we estimate that, for Form S-8, the proposed amendments
would result in a reduction of 115 internal burden hours and a reduction in the cost burden of
$46,000 for the services of outside professionals.

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