Finding and keeping the best employees is critical to success in business. Your business owner and executive clients likely know this already. But do they know you can help them attract and retain top talent? Here’s how:
Nonqualified plans are attractive savings alternatives for highly compensated employees. Essentially, they are an additional way to save for retirement without the restrictions of qualified plan contributions.
Deferred compensation, supplemental executive retirement plans (SERPs) and phantom stock plans operate similarly. Phantom stock plans are deferred compensation/SERPs where the crediting (growth) rate is tied to the company stock price, not insurance policy subaccounts and/or mutual funds.
A few reasons your clients should consider a nonqualified plan:
- Comfort – These plans are an excellent tool to assist in closing the retirement income gap for highly compensated employees; qualified plan limitations create an environment where executives’ retirement assets will likely not be large enough to maintain their same standard of living post-retirement
- Flexibility – Business owners and employees have more options to choose from because nonqualified plans aren’t subject to the strict standards of qualified plans
- Recruitment and retention – Talented employees are more likely to join a company which offers additional financially rewarding opportunities, and employees are more loyal to companies who offer nonqualified plans
Methods of funding nonqualified plans:
- Unfunded – Some companies elect to pay the obligations out of future cash flows
- Taxable investments – Employer invests in mutual funds, securities, money market funds, etc. (companies with low tax rates or those that are tax-exempt may see this option as attractive)
- Corporate owned life insurance (COLI) – Growth is tax-deferred, and policies can be used as a cost-recovery mechanism
- Taxable investments and COLI – This technique combines the tax-deferred growth advantages of life insurance along with the flexibility of taxable investments. Typically, the employer will utilize the taxable investment when total contributions exceed the maximum life insurance premium amount.
Put it in Practice: Talk to your business owner or executive clients about the benefits and options available with nonqualified plans. Call the Ash Brokerage Advanced Markets team for more resources and assistance!