To retain key employees, companies can consider offering non-qualified deferred compensation plans. This is a viable option for top producers and high-leveled employees to improve their retirement benefits. Non-qualified deferred compensation may reduce current adjusted gross income levels for key employees who are relying on the program to abate income taxes, capital gains tax and Medicare surtax.
What Can Lions Assurance Financial Do for You?
Many business owners seek innovative ways to keep their top producers engaged, while also saving themselves the hassle of unwelcome compensation programs and the recruitment of new talent.
Lions Assurance Financial can provide you a holistic solution and plan to create value for both key employees and your company. We implement a four-step to help our clients achieve business success:
Survey: We will begin process with a questionnaire to have a general understanding of your business and identify the unique composition of key employees. We clarify your business objectives and gain understanding of the unique current issues that need to be addressed.
Insight: To have a deep insight of your specific business, we will incorporate industry research, determine product offerings available from many sources, create an assessment and evaluation about your company benefits structural plan options.
Recommendation: Then, we will come up with potential solutions for a deferred compensation program that is tailored to your company. As an independent firm we can present multiple providers to create a plan that helps create value in attracting and retaining talent in your company.
Execution: We will implement the strategy your company would like to execute on based on the options provided and budget available. We help achieve a better result with our professional experience, integration of technology, understanding of your industry, and staying attuned to the compliance and regulatory requirements.
Key Items to Know in Deferred Compensation
Loss of a key employee can result in a decrease in sales and productivity and an increase in costs of recruiting, hiring, and training. While, a deferred compensation plan can provide key employees with a beneficial tax-deferred savings vehicle through employee and/or employer contributions. Businesses can benefit greatly with a strategy to retaining key employees for the long term.
There are typically three types of deferred compensation plans:
Supplemental Executive Retirement Plan
Supplemental Executive Retirement Plans (SERPs; also called non-qualified pension plans) are normally employer pay-all plans. Two types of SERPS are mainly considered by employers. The first one is ‘Defined Benefit SERP’, which is calculated on a specific formula such a s percentage of final pay. The other one is ‘Defined Contribution SERP’. It is an account balance plan which is made each year and credited with interest. The plan benefit is based on the accumulated account value at the designated distribution date.
Deferred Income Plan
When the earned income is not currently needed, an executive tends to defer income taxes. In this situation, a deferred income plan is appropriate. A Deferred Income Plan is a form of non-qualified deferred compensation plan. In this plan, executive can defer current income without the contribution limitations of 401(k) plans or IRAs. The employer may at its discretion offer to make matching contributions as specified in the agreement. Moreover, the executives could choose the portion of current and future compensation/bonus to be the deferred amount. This deferred amounts and interest accrued are paid to the executive over a specified period of time mentioned in the agreement, such as retirement or in the event of a disability.
Nonqualified 401(k) Look-a-Like Plan
With a Look-A–Like plan for select executives, the same “save and employer match” strategy used in qualified 401(k) plans can be attained without being limited by qualified plan contribution limitations. The executive can defer a portion of current salary or bonus as is done under a Deferred Income Plan with the agreement between the employer and executive. The employer will agree to make a matching contribution equal to a percentage of the employee deferral as specified in the agreement.
The overall process to design a deferred compensation plan:
Step 1: Employer selects which key employees qualify to earn a deferred compensation plan.
Step 2: An attorney examined written plan agreement is formed between the employer and key employee listing contributions and benefit amounts.
Step 3: The employer determines financial vehicle for the key employee, which serves as a funding tool for the plan. The amount of contribution will be provided under the deferred compensation plan.
Step 4: Employer makes agreed-upon contributions to the employee’s plan. The employee may qualify for benefits such as retirement, disability or survivor benefit, per the plan agreement. These payments are typically tax deductible to the employer when paid and are taxed as ordinary income to the employee.
Evaluate your strategy with Lions Assurance Financial and learn about business opportunities that will benefit your company. Lions Assurance Financial helps businesses, together with your CFO and HR Operations, to develop an optimal financial solution for success. Contact us for an initial complimentary consultation to see how we can help with your current business need.