n today’s competitive environment, attracting and retaining top executives is more difficult than ever, and demands creative solutions. Executive benefits may offer your best employees a higher level of benefits and compensation along with significant tax advantages. They also compensate for the fact that most 401(k) programs restrict the ability of executives to accumulate enough money on a tax-favored basis to fund the retirement lifestyle they desire.
Here are a few types of executive benefits that can help separate your company from the competition.
Traditional Deferred Compensation Plans (including SERPs)
In a deferred compensation plan, the executive defers a portion of his or her present compensation until retirement. In a Supplemental Executive Retirement Plan, the employer will provide funding for a defined benefit or defined contribution plan for a select few people. Under a properly designed plan, no taxes are due on the money until it is received. Some plans also promise to pay the executive’s spouse a benefit if the executive dies before retirement. Others will pay the executive a certain amount in the event of disability. Often life and disability income insurance policies are used to help informally fund the payments.
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Section 162 Plans
Often called “Executive Bonus Plans,” section 162 plans are a simple way to reward your top people. Under this type of plan, the employee purchases a permanent life insurance policy on his or her life. The company bonuses the employee the premium, which is usually considered taxable income to the employee and tax-deductible to the employer. The employee controls the policy, including the death benefit and the cash value, which accumulates tax-free until it is withdrawn.
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Supplemental Disability Income Insurance
Most group long-term disability policies provide roughly 60 percent of an employee’s income, up to a stated maximum. For most employees, two-thirds of their income won’t exceed the employer’s maximum benefit. But for highly compensated executives, the maximum benefit may amount to less than 50 percent of their take-home pay in the event of a disability. To address this problem, employers often purchase additional individual disability income policies on these executives to bring their total benefit, on a percentage basis, up to the same level of all other employees.
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