Employee Benefits - Executive Benefits Overview
Executive Benefit Statagies
Finding and retaining the right talent is key to the success of your company. As the competition to attract top performers to your company continues to heat up, you need a strategy to help you recruit and retain highly talented and driven employees. Many companies provide supplemental executive benefit plans, such as salary continuation, deferred compensation and other benefits, as part of their overall compensation packages.
Have you addressed methods to attract and retain the services of key employees?
Is your current qualified plan motivational to your highly paid employees?
Have you determined whether key executives current retirement plans provided by the company will meet their long-term retirement needs?
Do you have a qualified plan in place to attract and retain employees?
As a business owner, have you have addressed the limitations associated with funding your qualified plan?
Does your current benefit package differentiate its design between owner-employees and non-owner key employees?
Are you providing available ‘Non Qualified Plans’ that provide incentives and rewards to key executives to stay with the company?
Developing a successful compensation plan involves carefully considering a wide range of issues and potential problems. Finding solutions to these questions often requires both personal education, and the guidance of knowledgeable advisors, from many professional disciplines.
Non-Qualified Deferred Compensation Plan
To overcome the limits of qualified retirement plans, many employers offer top executives this voluntary arrangement, under which each selected executive elects to defer a certain amount of future income (deferral can be salary or bonus).
Non-qualified deferred compensation is an arrangement employers use to provide retirement income—and often death or disability benefits or both—to a select group of managerial or highly paid employees.
The arrangement is a contractual commitment between an employer and an employee (or independent contractor) specifying when and how future compensation will be paid. When it’s properly set up, the employee can postpone income taxation on the amounts currently being deferred until the benefits are paid.
The deferred compensation arrangements are “non-qualified,” meaning they don’t have to be preapproved by the IRS, and employers can discriminate in favor of selected employees. Properly arranged, they’re exempt from ERISA’s regulatory requirement.
Supplemental Executive Retirement Plan
A SERP provides the additional benefits desired by executives while they allow the employer to maintain control. By implementing a plan that imposes “golden handcuffs” – restrictions that can reduce or even cause the loss of benefits for executives if they leave your firm – you ensure a cost-effective method of rewarding and retaining talented management.
Executive Bonus Plans
One simple way to reward your key employees for their current contributions and also provide future incentives is by offering them an executive bonus arrangement. An executive bonus arrangement is a simple non-qualified plan that allows you to offer your key employees bonus compensation that has both immediate and long-term benefits for them and for their families.
As the employer, you retain complete control of the arrangement. You have the ability to choose the employees who will receive this benefit, select the bonus amount for each employee, determine the length of the agreement, and decide when your employees can access the benefits. Your company will also receive tax advantages while avoiding most of the paperwork, reporting requirements and limitations of a more complex plan.
Executive bonus arrangements provide a tax-favored way to reward key people on a selective basis, avoiding anti-discrimination rules and giving the recipients added recognition with valuable life insurance protection. Employees on the receiving end appreciate knowing that the company values their services, adding to the firm’s chances of retaining valuable, productive contributors to its bottom line
Split Dollar Plans
Split dollar is a method of funding permanent life insurance. It is an arrangement whereby two parties share a policy. The parties enter into a written agreement that spells out each party’s rights and responsibilities.
Collateral Assignment Method - In the collateral assignment method, the employee owns a life insurance policy and names a beneficiary, but assigns policy benefits to the company as collateral for the company’s premium advances under the arrangement.
The formal ownership of a life insurance policy subject to a split-dollar arrangement has important tax consequences under Regulations issued by the Treasury Department. At the employee’s death, the life insurance proceeds will be split however the parties have agreed. Typical splits include: (a) return of premiums only, (b) return of cash value only, or (c) return of the greater of the premiums paid or the cash value. The remaining proceeds are paid to the employee’s beneficiary. A lifetime exit strategy from a split-dollar arrangement has traditionally been known as a “rollout”. The company is repaid out of policy values or other executive's assets and the company releases the collateral assignment.
Endorsement Method - In the endorsement split dollar method, the company owns a life insurance policy on the life of the executive. A formal agreement endorses to the executive the right to name the beneficiary of a part of a portion of the death benefit. This type is most commonly used when the company wants to provide the executive’s beneficiaries with a pre-determined death benefit at a very low cost to motivate the executive to remain with the company. At retirement, the endorsement is released and the arrangement is terminated. The company may wish to: (1) recover the cost of the arrangement by surrendering the contract to obtain the cash value; (2) choose death benefit recovery by keeping the policy in force until the executive’s death; or (3) may transfer the policy to the executive.