Retaining top talent is a major priority for most businesses, especially members of the executive staff. Executive benefits are designed to provide your top employees with a higher level of benefits and compensation, especially since 401(k)s restrict the amount of money an individual can contribute on a tax-favored basis. Executive benefits can be designed to provide solid tax advantages for both employers and employees. Here are some of the more common executive benefits that you may wish to offer at your organization.
Non-Qualified Deferred Compensation Plans
- Executives can defer some of their compensation, either salary or bonuses, until retirement.
- Employers can offer Supplemental Executive Retirement Plans (SERPs), in which additional funding is provided for a defined benefit or defined contribution plan for top executives. No taxes are due on the money placed in these plans until it is received by the executives.
- Plans pay executives’ spouses in the event of the executive’s death before retirement.
- Plans pay out in the event of disability.
- These plans can be incorporated into an employer’s current qualified plan.
- Plans avoid IRS requirements for qualified plans and require minimal ERISA compliance.
- Plans can be informally funded with life insurance policies and aid in the cost recovery through the income tax-free death benefit.
Executive Bonus Plans (also known as Section 162 Plans)
- Employees purchase a permanent life insurance policy and then employers provide the premium as a bonus. This is considered taxable income and is tax-deductible for employers.
- Employees control the policy (including death benefits and cash value) and can take loans or withdrawals on the policy as they see fit.
- In the event of an executive’s death, his or her family receives the death benefit.
Split Dollar Plans
- Executives have the ability to purchase life insurance coverage without paying the premiums; payment responsibility rests on employers.
- Employers receive back the amount of the premiums when the executive dies.
Supplemental Disability Income Insurance
- A typical group long-term disability policy provides 60 percent of an employee’s income, up to the allotted maximum amount. For typical employees, this dollar amount will not exceed the employer’s maximum. Yet, for executives, the maximum benefit may not reach 50 percent of their salary, which would not fare well for them in the event of disability.
- Employers can purchase individual supplemental disability income insurance to bring the executive’s total benefit up to the same level as other employees.