Executive Benefits

There are many advantages to offering an executive benefits plan, including:

  • Increased ability to recruit, retain and reward your most important employees by providing a valuable and necessary benefit.
  • 401(k) Repair. Oftentimes, Highly Compensated Employees (HCEs) are limited in the amount that they can contribute to their 401(k) plan because the non-HCEs are contributing at low levels.
  • Narrowing of the "retirement gap." Even if HCEs can contribute the maximum to a qualified plan, it is still not enough to maintain their standard of living. Most HCEs still would not meet the commonly accepted threshold of needing 80 percent of one's working salary to maintain one's pre-retirement lifestyle.
  • Potential taxation advantages. Large tax hits from bonuses can be avoided through plan design and by defining the types of compensation that can be deferred into the plan.
  • Plan design. A nonqualified (NQ) plan can be structured to act as a long-term incentive plan and/or a golden handcuff plan for highly-valued executives who are important to the firm's position as a going concern, yet may have limited or no equity stake in the company.
  • Market downturns will require a higher savings rate to meet retirement goals. An executive benefits plan enables HCEs to save more during economic downturns.

Corporate boards, executives and shareholders are rethinking the value, security, and optimal execution of executive benefit plans in the face of market doldrums, higher plan liabilities, steeper security risks, and increasing demand for cost control and for efficiency. An effective executive benefits plan can play an important dual role — satisfying shareholders' demands for efficiency and effectiveness while offering attractive rewards and retention to talented executives who will add value to the company.

Executive Benefits Plan Types

Non-Qualified 409A Deferred Compensation Plan (DCP)

A DCP is a non-qualified benefit plan which enables employees at higher income levels to defer compensation on a pre-tax basis in excess of qualified plan limits. This plan has many of the features and benefits of a qualified 401(k) plan, but without the corresponding reporting, funding and non-discrimination testing requirements. The corporation may also contribute an additional amount and/or match the executive's contributions. Earnings on the employee and corporate contributions grow on a tax-deferred basis. Accumulated contributions and any earnings are paid out at some specified date in the future.