Sweet Spot: Comprehensive Planning For Boomer Execs

As the lines demarcating formerly separate professional disciplines continue to blur, insurance and financial advisors find themselves buffeted by twin forces: (1) the need to specialize (as, for example, in catering to a particular demographic group); and (2) to offer even more services to the individuals or business entities that have become their market niche.

Few groups, perhaps, offer advisors as great an opportunity for delivering comprehensive, creative and well-compensated financial services as the boomer executives now largely controlling the levers of Corporate America. The opportunity, producers say, lies specifically in integrating the executives nonqualified compensation packages with their retirement and estate plans into an overall solution.

“I absolutely believe that planning needs to integrate executive compensation with retirement and estate planning, particularly for the boomer generation,” says Scott Keffer, president and founder of Wealth Transfer Solutions, Pittsburgh, Pa. “Such integrated wealth planning allows the advisor to do more innovative strategies.”

Paul Gydosh, a managing director at Kensington Wealth Partners, Columbus, Ohio, concurs. Gydosh says he works extensively with high-level company officers and, to a lesser extent, their counterparts at not-for-profit organizations, to assist with both individual pre-retirement and executive compensation planning.

How does the process the work? Gydosh says he generally secures referrals to a corporate CEO, CFO or executive director to design a nonqualified group plan from an executive for whom he had offered individual retirement counseling. By pointing up to senior management weaknesses in the executive clients ability to fund post-retirement objectives, Gydosh says he frequently can gain managements ascent to a redesigned and more generous compensation package.

“In effect, we become the executives advocate,” says Gydosh. “We, rather than the president or executive director, will often present the new plan to the board. We can identify the cost to the enterprise of whats necessary to reward and retain the key employee.”

For highly valued execs, Gydosh adds, management may have a powerful incentive for beefing up the execs retirement package and, where appropriate, extending the package to other C-level managers. The risk of inaction: A Boomer exec in his mid-50s may opt to retire early, or else bolt to a competitor that offers more attractive benefits.

“Generally, the higher up you are in the organization, the greater is the chance of getting what you want,” says Gary Pokrant, a personal financial specialist with Reznick Group, Bethesda, Md. “If executives arent well taken care of where they are, theyll go where they will be. And so a very effective approach is to show [to senior management] what competitors are doing.”

If the executive works for a nonprofit and has maxed out on his or her qualified 403(b) plan and nonqualified 457(b) deferred comp plan (which currently has a $13,000 annual contribution cap), then, says Gydosh, he might suggest supplementing the executives benefits with a 457(f) plan (funding for which has no annual limit but is subject to a risk of forfeiture); a supplemental executive retirement plan (SERP); or 412(i) plan.

Pokrant points up other innovative options. In addition to deferred compensation packages, he often proposes that the organization pay for a certain number of dollars or hours per year for financial planning or tax-preparation services. The boomer executive benefiting pays only tax on the services received. Still, other options include company-funded long term care insurance, 529 college savings plans or matching contributions on the executives charitable donations.

Opportunities to undertake comprehensive executive compensation, retirement and estate planning are, advisors agree, greatest at for-profit entities. That is, in part, because businesses have more executive issues to addressstock options, black-out periods on securities sales, early retirement buy-out offers, etc. – than their for nonprofit counterparts.

Business execs generally also have more surplus assets to dispose of for retirement and estate planning purposes. But as regards to charitable giving, advisors note heightened interest in the not-for-profit sector.

Indeed, the charitable inclinations of nonprofit boomer execs tend to align with the missions of the organization they work for. So, in many if not most instances, the nonprofit itself is the beneficiary of the executives living or testamentary charitable donations. But funding these donations is frequently a challenge.

“They [not-for-profit boomer execs] are 10 times more likely to consider charitable giving than their for-profit colleagues but probably one-tenth as likely to be able to do it,” says Gydosh.

One answer to the funding dilemma, he adds, is for the executive donor to purchase a life insurance policy. The donor makes annual, tax-deductible gift contributions to the policy; upon his or her death, the policys death benefit passes to the nonprofit entity.

Alas, not all nonprofit execs are aware of this or other innovative funding strategies.

“Interestingly, board members [at nonprofits] seem to be quite ignorant about the possibilities,” says Keffer. “Their organizations tend to use them for solicitation of current gifts, as opposed to educating them about the power of wrapping planned gifts into their estate planning.”


Reproduced from National Underwriter Edition, November 18, 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.