Executive benefits enable you to selectively reward key employees and executives of your business. A well-designed executive benefits plan creates goal congruence and provides incentives that help retain your key human capital for the longest possible time.
We design, implement, and administer executive benefit plans that supplement restrictive qualified retirement and group insurance plans. These plans include:
- Non-Qualified Deferred Compensation Plans
- 401(k) Overlay Plans
- 401(k) Mirror Plans
- Supplemental Executive Retirement Plans (SERPs)
- SERP Swap
- Executive Life Insurance Plans
- Section 162 Buns Plans
- Split-Dollar Plans
- Term Insurance Plans
- Executive Disability Plans
- Executive Long-Term Care Plans
- Executive Medical Reimbursement Plans
Non-Qualified Deferred Compensation Plans – As most of us know, qualified plans (i.e.,. 401(k), Simple IRAs, etc.) are one of the most effective ways to prepare for retirement. However, they can be limiting and/or insufficient for meeting the retirement needs of high-earners. Thus, many companies offer non-qualified deferred compensation plans so that their executives can defer more of their income on a pre-tax basis. The two most common designs are:
- 401(K) Overlay Plans – These plans are designed to allow high-earners to defer more than the current annual deferral limits. In 2015, the limit is $18,000 for anyone under the age of 50, which is subject to cost-of-living increases. Individuals above the age of 50 are allowed to defer an additional $6,000 annually, which is also subject to the cost-of-living increases.
- 401(k) Mirror Plans – Some employers can’t meet the participation from all of their employees so that their top-earners can meet the current annual deferral limits. In fact, some plans’ maximums can be so limiting that their key executives can’t even participate in their company’s qualified plans without having their monies returned to them due to testing limits. In those instances, these non-qualified plans might be the only way for them to prepare for retirement on a Pre-Tax basis at the corporate level.
Supplemental Executive Retirement Plans (SERPs) – Just like non-qualified deferred compensation plans, these plans are intended to create additional funds to be used by the executive at retirement. The main difference is that these monies are usually contributed by the employer. Thus, they are typically used to create goal congruence and for retention.
- Goal Congruence is typically established based on the way the monies are contributed (i.e.,. extra percentage of commission for an outstanding sales person, or 10% of net income for a key executive).
- Retention is most commonly created through a vesting schedule since the origin of these contributions is from the employer.
In most cases, when an employer takes the time to establish a SERP, they typically allow for the executives to defer their own monies as well. Thus, many employers end up with a non-qualified deferred compensation plan that allows for discretionary employer contributions.
SERP Swap – There can be situations where retirement monies become secondary to personal estate planning. Thus, executives might want to swap their retirement monies for permanent life insurance coverage to help with their desire to pass their estates onto their heirs. In other cases, they may want to exchange their SERP monies for Long-Term Care (LTC) Insurance, especially since there are many advantages to purchasing LTC Insurance through the corporation. In any case, the maximum impact of a well-designed executive benefit plan is to provide a benefit that is of the highest value to the executive so it might become advantageous to change the benefit in the future.
Executive Life Insurance Plans – With how fast-paced life has become for everyone, it is not surprising that many executives do not take the time to take care of their personal planning. Thus, many employers have stepped in to ensure that their executives’ families are protected.
- Section 162 Bonus Plans – This is simply a directed bonus plan where the employer pays the premium directly to the carrier and adds it to the executive’s income at the end of the year. It can be used to purchase term or permanent life insurance.
- Split-Dollar Plans – Split-Dollar Plans are more of a split-premium funding solution, where the employer usually recovers its cumulative premiums at some point in the future.
- Term Insurance Plans – Depending on the health and number of executives to be covered, these plans may or may not require any health underwriting.
Executive Disability Plans – Many long-term disability income plans were designed at a time when executive compensation was much lower and mostly comprised of base salaries. Thus, many executives may find that they do not have the protection they need. In recent times, some group disability income contracts have become more flexible, insuring the varying forms of compensation used to pay executives and owners. However, a group contract’s maximum benefit amounts can be limiting and/or the rate can become quite expensive as the maximums are increased. Thus, some of the most effective and cost-efficient designs for top-earners tend to utilize both group and individual long-term disability income contracts. An additional benefit of using individual contracts is that they can typically cover almost any form of compensation.
Executive Long-Term Care Plans – The U.S. Government has never supported the sale of a product like they have for Long-Term Care Insurance. For C-Corporations and for any non-owners: premiums are deductible, the premium amounts are not includable as income, and the benefits will be received tax-free. The benefits for flow through entities are strong as well, but are based on age tables that allow for larger portions of the premiums to be deductible as the executive ages. The other benefits of purchasing as a group are multi-life discounts and the potential for reduced medical underwriting based on the size of the group applying for coverage.
Executive Medical Reimbursement Plans – A very common issue for owners is that they cannot participate in their company’s Section 125 plans, so their out-of-pocket expenses are typically paid with after-tax dollars. There are multiple companies offering plans to help alleviate this issue. These types of plans can also be a highly valued benefit for non-owner executives because they are reimbursement plans instead of the use-it or lose-it Section 125 plans, especially in the years that the executive and/or someone in the executive’s family incurs significant expenses.
To learn more about Executive Benefits, please call us at 402-397-5800.