More than seven in 10 businesses use life insurance to fund their non-qualified compensation packages for key executives, according to a new report.
The Newport Group discloses this finding in the 2014/2-15 edition of “Executive Benefits: A Survey of Current Trends.” The report examines how America’s largest companies (those with $1 billion-plus in annual revenue) are providing executive benefits, particularly non-qualified deferred compensation (NQDC) and supplement executive retirement plans (SERPs). The research also reveals how these plans are commonly structured, funded and administered.
The survey shows that 73 percent of respondents use company-owned permanent life insurance or COLI (variable, whole or universal) to fund their NQDC plans for key executives. An even higher percentage (82 percent) use life insurance to fund SERPs.
Fewer of the survey respondents, as the following table indicates, set aside other investment vehicles to pay for executive compensation packages:
Type of asset set aside for funding |
NQDC Plan |
DB SERP Plan |
COLI |
73% |
82% |
Mutual funds |
39% |
41% |
Bonds |
14% |
18% |
Company stock |
13% |
0% |
Separately managed investment account |
11% |
6% |
Company-owned life insurance (COLI) and mutual funds continue to be the primary asset types used to fund both NQDC plans and defined benefit SERPs,” the report states. “While sponsors typically employ ‘variable’ COLI to hedge the variable benefits of deferral plans, plan sponsors of defined benefit SERPs often use ‘general account’ insurance (whole or universal life) when insurance is used to fund SERP benefit liabilities.