Corporate Executive Benefits
AN IMPACTFUL WEALTH ACCUMULATION TOOL
TO RECRUIT, RETAIN AND REWARD KEY EXECUTIVES
Business owners and key executives face tax issues and retirement saving challenges due to restrictive legislation that dramatically limits the amount of income that can be deferred or contributed to the company’s qualified retirement plan. For this reason, a growing number of companies are turning to nonqualified deferred compensation plans to augment owners’ and key executives’ retirement benefits and overcome many of the regulatory restrictions that apply to qualified retirement plans.
OBJECTIVE ADVICE AND ADVOCACY
As professionals with many years of experience in executive compensation strategies, our role is to serve as your advocate-helping you define your plan specifications and compare existing programs with your current goals. We help you orchestrate the plan; assemble the required specialists; coordinate arrangements with the advisory team; and guide every aspect of the plan ‘s development.
SERVICES
Our services include the design, financing and administration of executive benefit programs such as:
- Non-qualified deferred compensation plans
- Supplemental executive retirement plans
- Executive life insurance, disability income plans, and long-term care insurance
- Executive incentive programs
- Executive Financial Planning
ADVANTAGES TO YOUR COMPANY
The intended end-result is a custom-built solution structured around your company’s unique requirements-whether it’s:
- Retaining key personnel;
- Restoring executive benefits lost to government limits on qualified retirement plans;
- Rewarding executives and aligning their behavior with the company’s long and short-term goals;
- Recruiting key executives to the company; or
- Retiring executives as part of a well-coordinated succession strategy.
Deferred Compensation Plans
AN INTEGRATED APPROACH TO
DEFERRED COMPENSATION PLAN IMPLEMENTATION
Our approach to both new and existing plans is to focus on three separate but linked elements: design, funding and administration. For example, the best deferred compensation designs can fail because of inadequate or ineffective funding arrangements that do not immunize the corporation against the liabilities created by these plans. Accordingly, our professional process is designed to address all aspects of your plan’s mechanics so that it performs as intended.
Supplemental Executive Retirement Plans
A Versatile Tool To Enhance Your Key Executives' Retirement Savings Package
As an executive’s income increases, the retirement gap-or the money he or she has versus the money needed at retirement age-widens. A Supplemental Executive Retirement Plan, or SERP, offers a secondary pre-tax savings account that can be used to bridge the retirement savings gap that often burdens highly-compensated executives. The plan provides a non-taxable deferred benefit to the executive, and a tax deduction for the sponsoring company.
A SERP is a deferred compensation agreement between a company and an executive where the company provides supplemental retirement income to the executive if pre-agreed eligibility and vesting conditions are met by the executive. The plan is funded by the company using cash flows, investment funds or cash value life insurance.
ADVANTAGES FOR COMPANIES
- Company can select who may participate in the plan, determine timing and amount of benefits.
- Plans can be structured to pay only when certain corporate goals are met.
- Company can establish a vesting schedule to encourage key executive retention.
- Plans can be managed using different financial instruments (cash, life insurance, etc.).
- Plans can be set up to require minimal government reporting.
- Company gets a tax deduction when it pays supplemental income benefits to the key employee.
ADVANTAGES FOR EXECUTIVES
- Provides additional income that remains untaxed until retirement.
- Benefit distributions can be tailored to meet the executive’s individual needs.
- While plans are typically paid at retirement, they can also be used as disability payments or as survivor benefits for an executive’s beneficiaries in the event of an untimely death.
Executive Insurance Plans
Life Insurance
PROTECTING YOUR COMPANY AGAINST THE LOSS OF KEY EMPLOYEES
The death of a key person can result in serious consequences for your business. Credit could be substantially impaired, or even worse, loans would be called if the key person was a co-signer. The loss of that “intangible asset value” represented by the key person may be greater than that caused by a fire, flood, or other catastrophe.
When insuring a loss through death, life insurance provides an important source of revenue replacement. Further, the key person insurance program can be designed to accumulate cash reserves that may be ultimately used for retirement, a termination replacement, or the retraining of successors.
SPLIT DOLLAR PLANS
Many companies design their Executive Life Insurance program as a Split Dollar Plan, which has the potential for enhanced tax treatment under the 2017 Tax Act. This is an arrangement between an employer and an employee to share the costs and benefits of a life insurance policy. These plans are widely used in gift and estate planning and can be an important part of the compensation package for key executives.
Split Dollar Plans can be used to:
- Attract, motivate and retain key executives
- Provide life insurance coverage for executives using employer funds
- Fund severance benefits
- Fund stock purchase agreements
- Fund nonqualified deferred compensation plans
Split Dollar Plans offer companies and business owners a number of advantages, including:
- Your premium investment in the plan is fully secured. If the insured employee dies or employment is terminated, your company is reimbursed from the policy proceeds for its payment of premiums.
- The death benefit from a Split Dollar Plan (both the employer’s share and the employee’s beneficiary’s share) is generally free from income tax.
- Split Dollar Plans can be customized to meet the objectives of both the employer and employees.
Disability Income
At many companies, group long-term disability insurance is insufficient for high-income executives. A typical approach for these high-income earners is to provide a taxable benefit based on 60% of one’s salary, up to a maximum monthly benefit of $10,000.
These Supplemental Executive Disability Plans can minimize the impact of a long-term disability on the company’s employee population, while also providing added benefits for the executive, such as replacing more than 60% of lost salary, as well as commissions, bonuses, etc.
Why Choose Executive Disability Income Insurance?
An executive’s bonuses, commissions, stock and other incentive compensation are not part of the group disability coverage equation. Supplemental disability plans can bridge the gap in the event of a disability or longterm illness, providing ample coverage-and peace of mind.
ADVANTAGES FOR COMPANIES
- Flexible: These policies can be funded by the company, the executive or both.
- Inexpensive to offer and administer.
- Attractive option for incenting key executives.
ADVANTAGES FOR EXECUTIVES
- Enhances basic group coverage to replace lost salary, commissions, bonuses.
- Policy is portable-coverage will remain in force as long as premiums are paid.
- If policy is paid by the executive, benefits are received tax free (under current tax law).
Long-Term Care
Offering an Executive Long-Term Care Insurance Plan helps companies recruit and retain talented workers. Employer-sponsored programs have created an important awareness of the need to protect hard-earned savings against ever-increasing long-term care expenses. MacArthur Financial helps helps companies incent top-tier executives, offering long-term care benefits tailor-made for their employees, at a relatively low cost.
These plans cover a wide variety of healthcare services which can be provided in the home or in other long-term care living arrangements. These services help with chronic illness, disabilities or other conditions because of an accident, sickness or cognitive impairment.
ADVANTAGES FOR COMPANIES
- Inexpensive benefit offering.
- Employer-paid premiums are tax deductible (with some limitations depending on the insurance product and type of business entity).
- Flexible plan implementation:
- Executive Carve-Out Plans for key employees
- Employer-Paid Base Plans for management or all employees
- Voluntary Plans for all employees
- Opportunity to offer coverage to spouses and family members
- Limited-pay premium structure (e.g., 10 years)
ADVANTAGES FOR EXECUTIVES
- Enhances basic group coverage to replace lost salary, commissions, bonuses.
- Policy is portable-coverage will remain in force as long as premiums are paid.
- If policy is paid by the executive, benefits are received tax free (under current tax law).
Golden Handcuffs
Employers invest significant resources in the hiring, training and retaining of key employees. Golden Handcuffs are financial incentives designed to help employers hold onto employees that they’ve invested in.
Golden Handcuffs may come in the form of lucrative commissions, generous bonuses, employee stock options, or other financial compensation; all provided to a talented employee as an incentive to keep them from moving out of the company. They are more common in tight labor markets, for jobs requiring highly specialized skills, or in industries where highly-compensated employees are likely to move from company to company.
Examples of golden handcuffs include employee stock awards that do not vest until the employee has been with the company for several years, and contractual agreements that stipulate certain bonuses or other forms of compensation must be returned to the company if the employee leaves before a certain date.
Phantom Stock Plans
A Phantom Stock Plan allows employers to attract, motivate and reward their key executives with many of the benefits of stock ownership without actually giving them any company stock. Rather than receiving physical stock, the executive receives “phantom” stock. Even though it’s not real, the phantom stock follows the price movement of the company’s actual stock, paying out any resulting profits.
Long-Term Advantages to Executives and Employers
Phantom Stock can help in getting an executive team to think and act like equity partners. It creates a sense of ownership in the success of the business.
In addition to its incentive components, a Phantom Stock Program can provide executives with tax-deferred compensation for retirement and can act like golden handcuffs in retaining key executives through vesting requirements.
Most often used by privately-held and family-owned companies, Phantom Stock Plans can be especially useful in providing the economic benefits of equity without diluting shareholder value. Because recipients of phantom units lack voting rights, a company can issue these units without altering the governance of the company or worrying about dilution issues.
Executive Financial Planning
An Executive Financial Planning program for your top performers addresses the unique financial needs and requirements of highly-compensated executives.
As a seasoned wealth advisor, MacArthur Financial is able to assess your executives’ financial situation, maximize the impact of compensation and benefits programs, and develop a plan focused on achieving the executive’s long-term goals. Offering Executive Financial Planning as a company benefit delivers several key advantages to the executive and to your company:
- Receiving expert help with family finances, investment decisions, and financial goals frees your executive to concentrate on achieving work objectives.
- A financially knowledgeable and educated executive gains expertise in the avoidance of costly financial mistakes at work as well as home.
- Paying for the assistance of a wealth advisor shows your company’s generosity and care toward valued employees.
- Your company can use the Executive Financial Planning benefit as a powerful tool in recruiting talent, retaining top executives, and fostering employee loyalty.
- Offering the services of an independent advisor alleviates any worry that your company has a stake in the executive’s investments and financial decisions.
*MacArthur Financial also works on an individual basis with top executives through our Private Client Services division.