The stock market is volatile and unpredictable, but the basic economic indicators are solid. The job market is as tight as it has ever been, particularly in major metro areas like San Francisco and New York City.  When was the last time you looked at compensation options for your key players?  Attracting, developing and retaining top talent is always important, but especially with the nation at nearly full employment as it is today.

While it is true there has been greater regulation around executive incentive plans in recent years, there are still some interesting and viable options employers should consider. Many organizations cannot or are not interested in setting up stock option plans or any type of equity transfer plan.  But the right kind of executive compensation plan can supplement a 401(k) or 403(b) plan and can provide an interesting tier of compensation that competitors may not offer.

Non-Qualified Plans

There are several major types of non-qualified plans but in general a non-qualified plan is a type of employer sponsored retirement plan which falls outside the employee retirement income security act and is exempt from the discriminatory and top-heavy testing that qualified plans are subject to. While contributions into these plans are still taxable to the employee, they are tax-deferred, the hope being that during retirement the key employee will be in a lower tax bracket than they were while working. Non-qualified plans are a good way of creating incentive and retention strategies for key players and executives.

Deferred Compensation Plans

Deferred compensation plans enable you to add a tier of compensation over and above the limits of a 401(k) or 403(b) plan. There are several ways to design non-qualified deferred compensation plans, but the overall goal is to allow the employee to defer some of their income now, in order to receive that income later during retirement and receive the tax advantage. Many programs can offer a way to defer compensation on a pre-tax basis that can grow tax deferred and enhance the personal financial program for key executives.  The decision to defer compensation must be made before the income is paid and there are important regulations removing funds during a distribution event.  It is also important to note that these plans are essentially a contract obligation between the company and the employee and have limited protections and regulation under ERISA.  A well-designed deferred compensation plan can help an executive decide how much compensation will be deferred and when the income might be needed.  For example, timing can be set up to pay for college expenses or a second home with the advantage of reducing current taxable income.  Most of these plans have an insurance component which can provide protection for both the individual executive as well as the company.

Please contact ABD SharedHR if you have an interest in this type of benefit for your key players executives.

Paul Finkle, SPHR, CMC – Executive Vice President

Disclaimer: Some information contained herein has been abridged from numerous sources and may be protected by various copyright laws. Such information should not be construed as consulting or legal advice. Please contact our office for specific advice and/or referrals.