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Non-Qualified Retirement Plans Help Agents Reach New Plateaus

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By Thomas C. Bates

What is one of the best ways for successful agents to strengthen their relationships with existing clients, generate a host of leads, substantial new sales, and reach a new plateau? For many of the best and the brightest, the answer lies in the often-arcane realm of non-qualified retirement plans.

Some agents grow complacent with hard-working, executive level clients whose life, disability, long term care and other insurance needs seemingly have been addressed from a personal standpoint. Yet even where the agent may have done an excellent job developing a personal financial plan backed up with quality products and service, these existing clients will often have a huge gap in their personal financial plan that may be best filled by a corporate sponsored nonqualified retirement plan.

Many executives, particularly those earning more than $100,000 annually, need to have a supplemental retirement plan to maintain their quality of life at retirement. Life insurance is a compelling way to finance these plans.

The trust and rapport that the agent has earned over many years of hard work with executive clients can provide the inside track for a substantial opportunity for the agent to sell the non-qualified plan. In doing so, the agent will further meet the clients needs and those of up to dozens, or even hundreds, of the clients colleagues.

Thus, agents should look for ways to gain introductions to the CEOs, CFOs, human resource and other senior executives at companies where their best clients work. This can be effective particularly at mid- and smaller-size companies with revenues of less than $250 million annually.

Indeed, while the majority of companies with revenues of more than $250 million already have at least one supplemental, non-qualified retirement plan in place, company-sponsored plans are far less prevalent at those with annual revenues below $250 million. In fact, the larger the company, the more likely it is to already have a plan.

The need for supplemental, non-qualified retirement plans stems from the plethora of restrictions on what can be contributed to and received from qualified retirement plans (e.g., pension, profit sharing, and 401(k)s). Nonqualified plans can be designed either to enable additional deferrals of income or to provide a supplemental benefit. In certain deferral plan designs, the plan may operate as an extension of a companys 401(k) and/or pension plan.

The need for these plans is readily apparent. Executives currently earning more than $200,000 annually often will receive 30% or less of their final average compensation in annual retirement income from qualified plans and Social Security. By contrast, rank-and-file employees can often reach a 70% threshold by participating in qualified plans.

It should also be noted that many companies have instituted supplemental, nonqualified plans by legally promising to pay executives an additional retirement benefit. Yet, they have taken no step to finance this long-term liability (nor are they required to, in contrast to qualified retirement plan contributions).

As these unfunded liabilities begin to mount at many companies, there is increased awareness that it makes good business sense to finance these liabilities now. The inherent long-term nature of life insurance combined with its tax and financial accounting advantages make it attractive and appropriate for many companies.

For several additional reasons, companies today are more receptive to instituting, and financing supplemental, non-qualified retirement plans. These include:

?Stock options. The decline in equity values from early 2000 to now has made many executives, and companies, skittish about placing a large portion of compensation dollars in the stock option basket. Too many executives now believe that stock options require first and foremost “market timing” skills and are a volatile form of compensation, rather than a reward for creating sustained shareholder value. Life insurance financed non-qualified retirement plans are a much more stable, and appreciated, alternative.

The pending retirement of the baby boomers. With baby boomers now increasingly crossing over the age 50 threshold and coming closer to reaching retirement, many realize it is imperative to participate in non-qualified, supplemental plans. This is particularly so if they need to do some “catch-up” savings and investment for retirement.

Need to attract and retain executives. Companies can design plans so they provide tiered matches and have other vesting provisions that attract and retain executives. Despite the soft economy, the demand for quality executives remains high and will become even stronger when there is an economic turnaround and the baby boomers begin to retire.

While existing relationships provide many life insurance professionals with compelling opportunities to enter the non-qualified, supplemental retirement plan marketplace, a host of items are needed, short term, to close these sales. These include:

1. Quality plan administration systems. These must provide clear, accurate and regular account balance information. Today, many executives and companies expect 24-hour-a-day Internet access to these account values and help desks staffed at least during normal business hours.

2. Access to quality products. Without attractive, well-rated products, companies may be skeptical of plans and may pass on implementing a program.

3. Education materials. The best-financed and administered plan has little value if company sponsors and plan participants do not understand the important benefits it provides.

By continuously providing outstanding service and superior education to clients, over the long term, the agent can continue to identify and capitalize on additional opportunities in his or her existing marketplace–and that is quite a superior alternative to complacency.

Thomas Bates, Esq., CPA, is vice president-sales with The Todd Organization, Greensboro, N.C. He can be reached at [email protected].

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 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.


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