Short-Term Benefit Plans Can Bring In Top Talent

For example, lets assume that XYZ Company is seeking to provide 3 of its younger executives with an additional savings and benefit plan. As an alternative to increasing their current compensation, the company could establish a 10-year deferral plan that includes some attractive “matching” and “interest crediting” options.

Plan Design & Funding Considerations. A STDC plan is governed by the terms and conditions of its deferred compensation agreement.

In many cases, STDC plans can be improved by providing pre-retirement disability and death benefit protection. In other situations, it may make sense to provide these pre-retirement benefits using separate benefit programs such as bonus disability or life insurance plans, sick pay plans or through split-dollar life insurance programs.

Deferred compensation payments made under STDC plans can be designed to take place prior to or after an executives retirement. Typically, deferred compensation payments are paid over an installment period in order to avoid lump sum taxation of deferred compensation payments and to spread employer benefit outlays.

In general, deferred compensation payments can be funded by using business cash flow or by establishing “informal” sinking funds using investments and/or life insurance products. Practically speaking, the funding strategy should be based upon a careful analysis of the types of benefits that will be provided, key person life insurance needs, cost recovery considerations and other relevant factors.

Sales & Marketing Tips. In general, your best prospects for STDC plans are profitable and well-established companies that employ one or more “top hat” key employees. Typically, your better prospects are larger companies that offer comprehensive group and retirement benefit programs.

As you approach these prospects, you may wish to use the concept of a STDC plan as a “door opener” to discuss a companys executive compensation strategy. In this world of shorter executive tenures, increasing executive mobility and competition for top talent, STDC plans are likely to become more common in the future.

is second vice president of advanced sales at Travelers Life & Annuity Company, Hartford, Conn. He can be reached at [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 2, 2004. Copyright 2004 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.