Experienced executives at successful companies are hot commodities, especially to competitors looking to replicate your success by hiring them away. As the competition to attract these professionals intensifies, a compensation package that includes supplemental executive benefit plans will help you retain, motivate and recruit the talented people who are the driving force behind your business.
Many standard employee benefit plans don’t give highly compensated executives the means to save for a retirement that suits their standard of living or provide life and disability insurance benefits that will allow their families to continue their current lifestyle. You can supplement your core benefits plan with salary continuation plans, deferred compensation plans and others geared to your key executives. You can even pick and choose who participates in them.
But a good executive benefits plan doesn’t have to be complicated. Higginbotham can help you design, communicate and administer a plan within the framework of your company’s financial and business strategies. We have relationships with some of the nation’s most creative design groups. Together, we strike a balance between meeting the needs of your executives and the cost per benefit trade-off to your bottom line. And the third-party administrators we work with offer tax, legal and accounting solutions to avoid penalties or unexpected taxation.
Common Executive Benefit Plans
Deferred Compensation Plan (DCP)
An arrangement whereby employees are allowed to defer a portion of their income to a pre-specified future date. That future compensation becomes a contractual obligation of the company. The income is not taxed until the money is paid to the employee. DCPs are only available to senior managers and other highly compensated employees, and they must meet the requirements for non-qualified plans in section 409A of the tax code.
Supplemental Executive Retirement Plan (SERP)
A non-qualified plan entirely funded by the employer whereby the company provides additional retirement income to an employee if pre-determined conditions are met. The plan is often funded by life insurance taken on the employee that will provide the future benefits defined in the agreement. The income is not taxable until paid to the employee.
Executive Benefit Plan (EBP)
Tax-deductible compensation bonuses provided by a company to executives for retirement savings. The company pays and deducts the premiums on an employee-owned life insurance policy, and the premium income is taxable to the executive, who can be reimbursed for the tax through withdrawals from the policy. A Restrictive Endorsement is available to limit the executive’s access to policy cash values until a specified date.
Executive Disability/Long Term Care
Supplemental coverage to an employer’s group long term care insurance that provides income protection in the event an executive cannot work due to illness or injury. It is an individual policy with a higher monthly benefit, bonus or commission income protection and portability should an executive leave the employer.
Corporate Owned Life Insurance (COLI)
Purchased by a business on select executives to fund the liabilities associated with Deferred Compensation Plans, Supplemental Executive Retirement Plans and Key Person coverage. The company is the owner and beneficiary of the policy, and the cash values are held as an asset on the company’s balance sheet. COLIs are designed to accumulate cash quickly the first year as compared to the normal lag time with standard life insurance policies.
Bank Owned Life Insurance (BOLI)
Purchased by a bank on select executives to fund its employee benefit costs. The bank is the owner and beneficiary of the “single premium” policy, and the cash values are held as an asset on the bank’s balance sheet. Tax-free growth of the cash values provides a return on investment that is higher than most other bank investments. Death benefits are used to recover the costs of the bank’s benefit plan costs and/or offset the accrual costs of certain nonqualified plans.