Variable Life Insurance Information
Executive Benefit Plans
What is an Executive Retirement Plan?
Simply put, an executive retirement plan is an agreement between employer and employee - a promise.
An executive retirement plan will help your company protect it’s investment in the key people who make the most significant contributions to the organization’s success. Every compensation dollar represents a capital investment in the goals and strategy of an institutions business plan.
Today’s executives are a highly marketable group of individuals. More and more professionals have acquired dynamic skills and abilities that are adaptable to many business situations. The best of these leaders find themselves sought after by other institutions. What steps can you take to ATTRACT, RETAIN, and RETIRE those talented employees in whom you have invested valuable time and specialized training?
An effective executive retirement strategy can help create that fit by addressing the unique contributions that officers, executives and key employees make to the success of the enterprise. An executive carve-out plan should reinforce a culture in which exceptional people work together to create exceptional business.
The Many Flavors of Executive Retirement Plans:
457 Deferred Compensation Plans
Blackrock Benefits has been hired by many organizations to design supplemental executive retirement plans for key individuals within their institutions. Two types of 457 plans exist, 457(F) and 457(B).
A 457(f) Non-qualified Deferred Compensation Arrangement is a non-qualified retirement plan which gives the tax-exempt employer an opportunity to supplement the retirement income of its select management group or highly compensated employees by contributing to a plan that will be paid to the executive at retirement.
A 457(b) Deferred Compensation Plan is a non-qualified plan available to highly-compensated individuals of tax-exempt institutions. This plan offers the executives an additional opportunity to defer an additional portion of their earnings on a pre-tax basis to reduce their taxable income and accelerate their retirement saving.
401k Mirror/ Excess Plans
A non-qualified 401k mirror plan is for organizations who have been told by their 401k administrator that their plan is a “top heavy” plan due to highly compensated individuals contributing excessive amounts into the qualified 401k retirement plan comparative to the rest of the employees contributing to the plan who are non-highly compensated employees. A non-qualified 401k mirror plan allows you to “carve out” the highly compensated or designated individuals and design a separate plan with the same attributes as a traditional qualified 401k retirement plan such as a vesting schedule, match on contributions from the organization and multiple investment choices. There are no discrimination testing guidelines and no contribution limits for a non-qualified 401k mirror plan.
A non-qualified 401k excess plan allows an organization to create a separate plan from their qualified 401k retirement plan that provides highly compensated individuals the opportunity to defer additional income on top of their max contribution into their qualified 401k retirement plan. There are no discrimination testing guidelines and no contribution limits for a non-qualified 401k mirror plan.
SERP (Supplemental Executive Retirement Plan)
A SERP is a non-qualified defined benefit plan. A very common executive benefit plan that will pay a pre-determined defined benefit payable by the organization at retirement to the executive based on age and years of service.
PUP (performance unit plan)
A PUP (performance unit plan) is an executive benefit plan that rewards the performance of an executive with "units". Each "unit" has a monetary value that is tied to a specific formula determined by the employing organization. The formula is driven by certain performance criteria such as ROA, ROE, revenue growth, net income or a combination of multiple factors. Each year a valuation of the "units" takes place and the executive can see the value of their "units". Organizations can choose to reward additional "units" at certain levels of performance, different levels of management or other criteria as chosen by the organization. "PUP" plans are similar to other executive benefit plans in that they can include vesting schedules, early retirement, retirement, and death and disability provisions.
Executive Split Dollar Insurance
An institution owned life insurance policy insuring the executive. At the time of the executive’s death, the life insurance death proceeds will be split among the executive’s estate and the institution based on a pre-determined formula or stated dollar amount.
Defined Contribution Plans
A defined contribution plan is a nonqualified plan that promises an executive a stated dollar amount or a percentage of compensation or corporate profits to be contributed on an annual basis or at a stated retirement age. Proceeds received by the executive are taxed upon receipt.
Executive Bonus Plans
A Restricted Bonus Plan -- also known as a Section 162 Plan or Executive Bonus Plan -- is an agreement between the organization and it’s highly compensated employees to provide supplemental income and a death benefit. The plan can be funded with cash value life insurance purchased by the organization for your key employees.
The employee applies for and owns the life insurance policy and the employee has the right to designate the beneficiary (ies) of the policy. The company pays the "bonus" premium directly to the insurance company. The employee's right to receive the cash value of the policy through loans, withdrawals or surrender is subject to a vesting schedule based on age, years of service or other conditions agreed upon by the company and the employee. If the employee terminates employment prior to becoming fully vested, the company is repaid some or all of its "bonus" premiums from the policy's cash value.
Executive “Carve Out” Plan
An executive carve out plan is another name for a non-qualified plan for certain designated highly compensated individuals that an organization wants to provide supplemental executive benefits to for the value they add to the organization.
Executive Buy-Sell Arrangements
A Buy/sell agreement can be an effective tool to allow a business to continue after a triggering event (i.e. death of partner, disability, divorce, etc.). A buy-sell agreement funded with life insurance can, in the event of death of an owner, provide the surviving owners the funds necessary to meet the terms of the agreement. Executing a carefully planned buy-sell agreement will assure owners in a closely held business that their interest in the business they built is secure regardless of any unforeseen circumstances.
Key Executive Insurance
Institution owned life insurance on a key individual(s) where the death proceeds are assigned to the organization as a cost recovery strategy to replace the deceased executive or to purchase the stock from the deceased executive estate by the surviving shareholders.
Periodically benchmarking your company’s executive compensation and benefits is an extremely important exercise, benchmarking ensures that your top executives are being adequately compensated compared to other companies similar in nature. Blackrock Benefits can prepare a comprehensive review of comparable companies’ executive compensation plans, and then review those plans with you to ensure your company is competitive.
A successful executive retirement plan can be measured in motivation of increased productivity, loyalty and ownership level commitment.
To learn more about executive benefit plans please visit: www.BlackrockBenefits.com.
Blackrock Benefits is a comprehensive Executive Benefits firm providing organizations throughout the country with the tools and resources to Attract, Reward, and Retire key employees. These key employees ultimately drive the success of the organization and will inevitable determine its future. At Blackrock Benefits we not only helps our clients improve their organizations bottom line and return on assets by implementing unique executive benefit plans, we also ensure their individual wealth management plan forms a cohesive strategy that will minimize taxes, and maximize wealth transfer.