Using Executive Benefits Plans to Help Employers Prepare for Retirement

Clearly, highly paid employees need nonqualified retirement benefits to make up for the limits on their contributions to qualified retirement plans. Just as important, employers need to focus on the value of nonqualified benefits to help recruit and retain talented executives in a highly competitive marketplace. None of this need was diminished by the recent legislation that implemented ? 409A of the Internal Revenue Code, but with fewer agents engaged in the executive benefits business, the opportunity has grown for those agents with the knowledge and focus to tap into this potentially lucrative universe of clients.

Employers also have a growing need for executive benefits arrangements. The Bureau of Labor Statistics estimates there are over 350,000 chief executives and 2.2 million “top executives” in the U.S. today. And according to Entrepreneur magazine, a survey of CEOs of medium-sized companies — those with 200 to 500 employees — reveals that their No. 1 concern is attracting and retaining quality employees.

As a refresher, here are some of the nonqualified executive benefits plan types that may help you build your business in this arena:

• Split-dollar loans – In essence, the employer pays premiums on a life insurance policy owned by the executive, yet retains an interest in the policy. The policy provides the executive with a death benefit and potential retirement income.
• Executive bonus (? 162) plans – This gives executives a cash value life insurance policy using the employee’s after-tax dollars. The employer pays the premiums, treating them as taxable bonuses. So, the executive gets potential tax-preferred supplemental retirement money, plus a death benefit on an after-tax basis.
• Restricted executive bonus arrangements – These, like the executive bonus plan, have the employer paying premiums, yet they use a supplemental agreement that may, for example, require the executive to pay back some or all of these premium advances if they leave prior to retirement. This provides a solid incentive to stick around for the long haul.

In a rapidly changing and competitive marketplace, these nonqualified retirement plans can be an effective tool for recruiting, retaining, and rewarding valuable executives. With flexibility in design and the ability to discriminate in favor of key executives, these plans can be customized to meet the needs of both the business and top management.

Competitive benefit levels, deferred vesting of substantial benefits, future benefits dependent on meeting current company objectives, and similar incentives encourage top executives to remain with the company.

Savvy agents can see this business imperative clearly and are taking advantage of tools and training that can help them enter this market segment. Like their clients, they have calculated “their number” and have quantified the potential that lies in the executive benefits arena.

Randy Kemnitz, CFP is manager of executive benefits at ING. He can be reached at [email protected]. Maggie Mitchell, JD, CLU, ChFC, is vice president of advanced markets at ING. She can be reached at [email protected].