Executive Benefits 

According to the Fifth Annual MetLife "Study of Employee Benefits Trends," an increasing number of employers are beginning to offer executive benefits to attract and retain key executives. Along with LTC insurance and individual disability insurance, supplemental retirement plans rank among the most popular of executive benefits. By offering a supplemental retirement plan, companies can assist their executives in closing the "retirement gap" that many highly compensated employees experience.

There are many advantages to offering an executive benefits plan, including:

• Increased ability to recruit, retain and reward your most important employees by providing a valuable and necessary benefit.
• 401(k) repair – Oftentimes, highly compensated employees (HCEs) are limited in the amount that they can contribute to their 401(k) plan because the non-highly employees are contributing at low levels.
• Narrowing of the "retirement gap" – Even if HCEs can contribute the maximum to a qualified plan, it is still not enough to maintain their standard of living. Most HCEs still would not meet the commonly accepted threshold of needing 80 percent of one's working salary to maintain one's pre-retirement lifestyle.
• Potential taxation advantages – Large tax hits from bonuses can be avoided through plan design and by defining the types of compensation that can be deferred into the plan.
• Plan design – A nonqualified (NQ) plan can be structured to act as a long-term incentive plan and/or a golden handcuff plan for highly-valued execs who are important to the firm's position as a going concern, yet may have limited or no equity stake in the company.
• Continued market downturn will require a higher savings rate to meet retirement goals – An executive benefits plan enables HCEs to save more during the current economic downturn.

We believe that corporate boards, executives and shareholders are rethinking the value, security and optimal execution of executive benefit plans in the face of market doldrums, higher plan liabilities, steeper security risks, and increasing demand for cost control and for efficiency. An effective executive benefits plan can play an important dual role — satisfying shareholders' demands for efficiency and effectiveness while offering attractive rewards and retention to talented executives who will add value to the company.

Executive Benefits Plan Types:

Nonqualified 409A Deferred Compensation Plan (DCP)

A DCP is a nonqualified benefit plan that enables employees at higher income levels to defer compensation on a pre-tax basis in excess of qualified plan limits. This plan has many of the features and benefits of a qualified 401(k) plan, but without the corresponding reporting, funding and nondiscrimination testing requirements. The corporation may also contribute an additional amount and/or match the executive's contributions. Earnings on the employee and corporate contributions grow on a tax-deferred basis, and the accumulated contributions and any earnings are paid out at some specified date in the future.

Nonqualified Supplemental Executive Retirement Plan (SERP)

A SERP is an agreement between an employer and one or more of its key employees to provide corporate-sponsored additional/supplemental retirement benefits. The plan can be structured as a "defined benefit" plan or a "defined contribution" plan.

• Defined benefit structure – The company promises to pay an executive a specified amount of retirement income for a specified period of time.
• Defined contribution structure – The company promises to contribute a specified amount for a specified period of time into a retirement account for an executive. At retirement, the accumulated contributions plus any earnings are paid out as retirement income over a specified period of time.

Executive Bonus Plan (EBP)

With an EBP, the company uses compensation bonuses to assist the executives in saving for their own personal financial and retirement goals. The company pays the premiums on a specially designed, employee owned life insurance policy and treats the premium amount as a compensation bonus to the executive. The premium amount is tax-deductible to the corporation and taxable income to the executive. If properly structured, the tax-advantaged cash value accumulation within the policy and the death benefits can provide the employee with significant retirement income and survivor benefits.