EXECUTIVE COMPENSATION AND ERISA
Effective Personnel Management is crucial to the success of a business. This includes hiring, compensating, motivating and rewarding your team to get the best of your human capital. Rewarding your Executive Team is one of the most effective methods for ensuring the success of your business.
Are you being faced with increased competition for talented key executives ? With so many options, it is important to work with a professional who can help identify your needs and objectives. Millennium can help you and your business create a cost effective customized executive benefits plan using aggregate funding. This is a method of accumulation of money for a pension plan, where an actuary determines the present value of all future payments of benefits and deducts from this value any funds that may be on hand with trustee or with the insurance company and distributing the balance as a cost over the future. The aggregate funding ratio of S&P 1500 companies, as studied monthly by Mercer, was 74% at the end of June, slightly below 75% at the end of 2011 and 76% at the end of May. The aggregate pension plan deficit increased $59 billion in the first half of 2012 to $543 billion, including a $55 billion increase in June. Funded Pensions Contribute to Higher Aggregate Savings.
In the past, many businesses owners attracted, motivated and retained their top talent by offering a combination of salary, incentive bonuses and qualified retirement benefits. Unfortunately, these traditional compensation strategies don’t always work today.
There are alternatives to traditional compensation strategies. Non-qualified plans can provide flexible executive benefit options to reward and retain your key executives and help keep your company competitive and stable.
Customizing Executive Benefits Using Non Qualified Plans
Qualified retirement plans such as 401(k) plans and profit sharing plans are highly structured and lack the flexibility needed to target select executives. Qualified plans have contribution limits, must be made available to all employees who qualify, are subject to ERISA funding and reporting requirements and penalize participants for early withdrawals. Non-qualified plans offer employers great flexibility to design customized benefits that will help recruit, retain and reward your key employees. The key is customization – employers can tailor executive benefits to help achieve the goals that are most important to the business and to the selected participants. By customizing benefits, your business can optimize the effectiveness of a non-qualified plan design.
Non qualified plans are compensation strategies that allow you to pinpoint which benefits you wish to offer and which employees you want to include in the plan. Such types of plans include:
■ Deferral Plans, such as non-qualified deferred compensation arrangements (NQDC) and 401(k) look-alike plans.
■ Supplemental Plans, such Executive Retirement Plans (SERP), IRC §457 plans, and severance plans.
■ Split Dollar Arrangements
■ Bonus Arrangements
All of the plans are flexible and can be tailored to help meet both the specific needs of the company and the executive. With so many options, it is important to work with a financial professional who can help identify your needs and objectives. Your business can use non-qualified plans to accomplish a wide variety of goals, including:
■ Recruiting, retaining and rewarding key executives. ■ Counter the “reverse discrimination” of qualified plans. For example, help executives overcome the contribution limits imposed by qualified plans. ■ Provide income tax deferral for executives. ■ Act as “Golden Handcuffs” to provide incentives for executives to stay with your company. ■ Recruit and retain outside directors or board members for your company.
We can help you and your business create customized executive benefits by selecting one or more of the following plan designs:
1. Section 409A plans including Non-qualified Deferred Compensation Plans (NQDC), Supplemental Executive Retirement Plans (SERP) or combination arrangements (NQDC/SERP)
2. Split Dollar Loan Arrangements
3. Split Dollar Loan with a Rollout (Split Dollar Loan/Sec. 409A Combo)
4. Survivor Income Death Benefit Only (DBO) Arrangements
5. Endorsement Split Dollar Arrangements
6. Executive Bonus (§ 162) Arrangements
7. Restricted Executive Bonus Arrangements (REBA)
8. Business Owner’s Bonus Plans
9. Section 419 Post-Retirement Medical Benefits (PRMB) Arrangements.
Employers using aggregate funding may be able to provide the same level of benefit to plan participants for less premium than would otherwise be required. Aggregate funding can also simplify the underwriting process and increases the likelihood that a case can qualify for guaranteed or simplified issue.
The use of Aggregate funding techniques should be considered for Executive Benefits arrangements where the employer will own the life insurance policies (i.e., NQDC & SERP arrangements) and one or more of the following factors are present:
• The arrangement has ten or more participants; • Some of the participants are close to retirement age; • One or more of the participants is in poor health or uninsurable; • The employer wants to take advantage of simplified issue or guaranteed issue underwriting; • The employer plans on using policy cash values to pay benefits.
Contact us for a complimentary review of the following programs:
ESOP| Section 125 Cafeteria Plans | Disability Plans | Supplemental Income Protection Plans | Section 403b | Qualified Retirement Plans | Employer Sponsored IRA’s | Non Qualified Executive Compensation Plans
Contact us for an advisory analysis of Employee Benefits Plan.