How are you meeting the challenge of retaining valuable employees and attracting new talent?
Employers must go beyond the traditional benefits offered in the workplace and find unique employee benefits that will motivate key executives to work for – and remain with – the company.
Group plans are limited due to nondiscrimination regulations that ensure benefits do not favor the highly compensated. Unfortunately, this means executive-level employees have to purchase additional coverage in the individual market. However, there are special compensation programs that allow employers to provide additional benefits to selected individuals in exchange for agreeing to satisfy a specific service requirement.
Deferred Compensation Plans
These plans allow the participant to defer income today and withdraw it in the future (usually upon retirement) when taxable income is likely to be lower. Almost any investment vehicle can be used in this arrangement, but a permanent life insurance policy is typically selected because the funds above the cash basis can be borrowed out of the policy with no tax consequences (they will simply reduce the death benefit).
A Supplemental Executive Retirement Plan (SERP) is a deferred compensation option that guarantees a set amount at sign-up, that the executive receives at retirement. There are several options for calculating the amount of a SERP, which can also be structured for funding by a cash value life insurance policy, to pay out to beneficiaries in case of premature death.
Split Dollar Life Insurance
This is an arrangement between an employer and an employee to share the costs and benefits of a life insurance policy. The parties jointly purchase the policy and agree to split the cost of the insurance premiums as well as the death proceeds, cash value, and other benefits. Employers may also use these plans to provide low-cost life insurance protection to employees, as well as to fund severance benefits, stock purchase agreements, and non-qualified deferred compensation plans.
Executive Bonus Plan
Also referred to as a Section 162 Plan, this non-qualified plan allows an employer to provide life and disability income insurance to key executives, using tax-deductible dollars. The policies are paid for through cash bonuses to the executives.
If cash value life insurance is used, a Restricted Executive Bonus Arrangement (REBA) may be incorporated into the plan. The REBA prevents the executive from accessing the policy’s cash values without the consent of the employer. Employers may use this approach to retain key employees, defining specific qualifying events that will trigger the release of the executive from the agreement.
Long Term Care Insurance
The significant cost of long term care poses a serious threat to the financial security of the average executive by the time they retire. Yet executive compensation programs often fail to include a vehicle to protect the plan’s benefits from the ravages of financing long term care. Adding Long Term Care Insurance offers the necessary protection. By establishing predetermined criteria for these benefits, an employer can legally segment a class of employees eligible to have the premiums paid by the firm.