Some might say the deck is stacked against us.
Internal Revenue Service Notice 2001-10 put a crimp in split-dollar sales; repeal of the estate tax is a possibility; and another attack on the inside buildup of cash value life insurance may be ahead. Whats more, we are all enjoying a wild ride in the market, and “unpredictable” doesnt begin to describe our current economy.
What to make of all this? For every major tax regulation that negatively impacted life insurance, there were those who said the insurance business is doomed. Yet, the business continues to survive and even thrive in new environments. Companies have built new and better products. New markets have presented new opportunities. And out of chaos has come opportunity.
Likewise, despite todays seemingly stacked deck, I still see huge opportunities for the executive benefits market.
Yes, the stock market has had its tumble. All indications are, however, that chief executive officers still have a positive outlook for the future. And if you ask key executives in the corporate-owned life insurance market, some are saying that sales are up and they expect the trend to continue.
Where does this optimism come from? I think there are several reasons for this thinking.
First, the current environment is not a deal-killer. Yes, the stock market dropped, but this is not the first–and it won’t be the last–time for this kind of market swing to occur. And while a few investors saw the downturn as a sign to get out, many others saw it as an opportunity to get in at a low price. Indeed, the market is already rebounding and gaining new strength.
A second reason for this optimism is that those who purchase variable products in the corporate market understand the nature of the beast. These are business owners and top executives. They accept the ups and downs of the market. Although they have a healthy respect for the potential swings, they are not afraid of the market. This respect reminds everyone that diversification is a good thing.
Another reason is Stock Option Plans. These plans have lost a lot of glory recently. By no means am I saying that option plans are dead. They remain a viable choice for executive benefit plans. Just be patient, and youll see their popularity rise again.
However, the fact is, these plans are being displaced today. Dot-com companies are still falling, and so are all those wonderful stock options that so many overnight millionaires counted on for an early retirement. As a result, some of those same executives are now looking for something a little more meaningful in their nonqualified plans. A traditional deferred compensation plan or supplemental executive retirement plan (SERP) has a lot of appeal.
Reason number four: executive compensation. There has been a significant shift over the years from fixed to variable compensation. This shift puts a strong emphasis on pay for performance. It has also given rise to substantially higher incomes for key executives. With the contribution limits that exist on qualified plans, what an opportunity this creates for those of us in the nonqualified plan market!
A final reason for optimism is the reason corporations establish nonqualified plans in the first place. If you know the three Rs of nonqualified plans, then you know that they have not changed over the years. Employers are still looking for ways to recruit, reward and retain their star executives. Executive benefit plans remain a hot topic of conversation with CEOs and at the top of the list in retaining key executives.
Implementing executive benefit plans and appropriate financing remain golden opportunities for us. The current market environment has not hurt the COLI market. If anything, it has established a stronger reason for CEOs and executives to meet with professional advisors and discuss alternatives to retirement planning.
, CLU, ChFC, FLMI, is assistant vice president at Executive Benefit Advisors, a division of GenAmerica Financial Corporation, St. Louis. His e-mail address is [email protected]
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.