BenefitsLab
will design a voluntary benefit program to meet your
specifications, provide announcement and enrollment
materials, conduct educational meetings at your locations and
provide customer service and support to guarantee your voluntary programs run smoothly.
Executive Benefit Plans
Most companies that provide retirement-planning do so with a
401(k) plan, with or without matching or profit-sharing
benefits. While these plans are great for rank-and-file
employees, they are severely limited for corner-office
types. This leads to three primary challenges for the
business owner.
First, qualified plans, such as a 401(k), hinder highly
compensated people from socking away enough money to reach their
retirement goals. That's because company officers can only
sock away a certain amount above and beyond what the rest of the
employees choose to set aside, which is typically 125% of their
contributions, or two percentage points higher, whichever amount
is larger.
While your talented $300,000-a-year exec might want to put 10%
into the plan, he or she might be capped at 5% because the rest of
the employees are averaging 3%.
Second, qualified plans aren't all that flexible: and
the
Employee Retirement Security Act (ERISA) requires these plans must
cover all eligible employees; that means business owners cannot
use retirement plans as special perks to highly valued
execs.
Third, qualified plans arguably don't allow executives
to save enough of their pre-tax income.
Luckily, there is a solution: executive benefit plans.
These non-qualified plans help close the "retirement
gap" by allowing executives to put away the amount they will
need for a retirement suitable with their current lifestyle.
Business owners can also pick and choose who participates in the
plan; better yet, they can customize a specific plan for each
executive. Non-qualified plans also provide tax advantages,
both for employees and businesses. Often, plans can be
designed with minimal or no impact to the company balance
sheet--and over time can actually improve it.
What about stock, you ask? Offering equity has long been
a way to attract and retain talent. But stock grants and options
have their limitations, beyond the obvious ownership dilution.
First, this isn't 1999. The credit crisis and potential
recession have ground deal-making to a halt. Without a
"liquidity event," the sale of the business to
a strategic buyer or the unloading shares in an initial public
offering--that stock is essentially worthless. The business
could buy the stock back, of course, but that's not exactly
something employees can count on.
The other hassle with stock- or option-based compensation:
complying with the various rules and regulations. Among
other things, running that gauntlet involves an annual company
valuation. These can cost $10,000-40,000 a year and may work
against your estate-planning goals, which typically aim to reduce
the taxable value of your business.
There are myriad flavors of executive benefit plans, sold by
accounting firms, law firms and a disaggregated cadre of
compensation-planning firms. The three general types of plans are:
SERP. A Selective Executive Retirement
Plan targets key personnel and allows the company to mete out a
percentage of an employee's pay at the time of retirement over a
number of years, like an annuity or pension. SERPS are
partially funded by the company, like a 401(k)-matching benefit or
a defined benefit plan. The downside: Unlike 401(k) plans,
SERPS are not portable.
Deferred Compensation Plan. These plans allow
key employees to defer income, and therefore current taxes.
Unlike SERPS, these plans are not company-funded; execs sock away
their own pre-tax dollars.
A-la-Carte Plans. Non-qualified plans
can also include benefits like life insurance, disability
insurance and long-term care insurance, according to the needs of
the executive and the business. We're talking total
customization here.
One caveat to executive benefit plans: While they come with
less red tape than stock or qualified plans, entrepreneurs most
likely will need a specialist to administer their plans (usually
the same firm that originally set up the plan). That's because
executive benefit plans are covered by section 409(a) of the tax
code, meaning that they require an experienced adviser who can
avoid potential penalties or unexpected taxation.
