As competition for top talent continues, it is increasingly important for companies to design, implement and manage effective retirement programs for top executives, senior management and other highly compensated individuals. Because qualified plans, such as 401(k)s, must follow strict IRS and ERISA mandates on contribution limits and covered compensation, they are becoming less appropriate savings vehicles for top earners to accumulate adequate retirement savings. Many companies (over 85% of Fortune 1000 companies) establish nonqualified plans, which have virtually no restrictions on contributions and/or compensation.
In order to continue to build, protect and maximize shareholder value, as well as to recruit, retain and reward top talent, many leading companies have recognized the need to design innovative and effective nonqualified retirement programs. Companies can limit participation in these programs to select individuals and impose creative vesting schedules to make the plans attractive for both the company and its executives.
Our firm offers specialty services and a proven process to help companies design, implement, manage and informally finance an Executive Reward and Retention Strategy such as:
- Deferred Compensation (i.e., 401(k) Mirror/Excess) A properly designed and financed 401(k) Mirror Plan will provide a company’s senior executives and other highly compensated employees an opportunity to save for future financial goals and retirement on a pre-tax basis. A 401(k) Mirror Plan has all of the advantages of a traditional 401(k) plan, but virtually none of the restrictions commonly contained within qualified benefit programs. In addition, participants enjoy increased flexibility regarding when and how benefit distributions are received.
A 401(k) Mirror Plan can give a company a competitive advantage in the marketplace. With enhanced benefits, it is easier to recruit, retain and reward top executives and other highly compensated employees. A properly designed 401(k) Mirror Plan is one of the most cost-effective benefit strategies available. Employers serve as a conduit and use participant deferrals to provide the benefit. This approach can actually add to the company's bottom line, thus often significantly enhancing shareholder value. - Supplemental Executive Retirement Plans (SERP) The purpose of a Supplemental Executive Retirement Plan (SERP) is to provide additional post-retirement income for selected senior executives beyond those provided by the employer's qualified retirement plan.
SERPs are extremely beneficial to executives and employers for many reasons. For the executive, the benefits can come in the form of retirement income or capital appreciation, and most SERPs are designed to include a survivor benefit in the event of the executive's premature death.
The benefits are usually carefully defined, based on predetermined targets, and are easily understood by the executive. Today more and more companies are designing SERPs to include performance-based incentive contributions and stringent vesting requirements. SERP contributions and benefits accrue on a pre-tax basis and the executive is able to defer tax on the earned benefits until they are paid, usually after retirement. Today, SERPs are a popular form of compensation and continue to be highly favored by many executives. - Executive Life Insurance
Employers often look for innovate ways to provide “meaningful” life insurance benefits to their top executives, key employees and other highly compensated employees while minimizing their benefit costs.
A cost-effective life insurance plan typically involves the purchase of individual life insurance policies that are specifically designed for the executive benefit marketplace. These plans are usually structured so that the premiums are paid for either directly by the employer or indirectly through a salary and/or bonus to the employee. An executive life insurance plan has many benefits for both the executive and employer. The executive is the owner of an ever-increasing asset, has access to cash values on a tax-favored basis, and has permanent life insurance coverage. The company benefits from improved economics (contributions are tax deductible) and gains a retention benefit at a minimal cost.
A properly structured executive life insurance plan can replace existing group term life insurance coverage with an enhanced benefit that is more efficient for the company and more attractive to the executive. - Executive Disability “Carve Out” Plans
Companies look for creative ways to provide “meaningful” disability benefits to their top executives, key employees and other highly compensated employees, while minimizing their benefit costs.
A properly structured supplemental long-term disability plan can significantly increase disability benefits above traditional group disability policies. The plan can be structured to cover total compensation, including bonus and retirement plan contributions. Policies can be issued as individual contracts with guaranteed portability, high levels of guaranteed standard issue coverage and plan maximums, along with own-occupation protection. - Executive Retirement and Investment Planning