Utilizing Executive Benefits to Retain Senior Talent

Retaining top talent is a critical priority for most businesses, particularly when it comes to executive staff. To attract and retain these key individuals, executive benefits are designed to offer enhanced compensation and more robust benefits, especially given the limitations of 401(k) distributions on a tax-favored basis.

Executive benefits can be structured to provide significant tax advantages for both employers and employees. Below are common executive benefit strategies that could add substantial value to your organization.

Non-Qualified Deferred Compensation Plans

• Executives can defer a portion of their compensation – such as salary or bonuses – until retirement, allowing for potential tax deferral and long-term financial planning.
• Employers can offer Supplemental Executive Retirement Plans (SERPs), which provide additional funding through defined benefit or defined contribution structures for select executives. Taxes on these contributions are deferred until distribution.
• Plans can include survivor benefits, ensuring payment to an executive’s spouse in the event of death prior to retirement.
• Disability provisions can be included, offering benefit payouts if the executive becomes unable to work due to injury or illness.
• These plans can be integrated with an employer’s existing qualified plan to enhance overall benefit offerings.
• Plans are exempt from many IRS requirements applicable to qualified plans and involve minimal compliance under the Employee Retirement Income Security Act (ERISA).
• Plans may be informally funded using corporate-owned life insurance policies, allowing for cost recovery through the income tax-free death benefit.

Executive Bonus Plans (Section 162 Plans)

• Executives purchase a permanent life insurance policy, with the employer providing premium payment as a bonus. This bonus is treated as taxable income to the executive and is tax-deductible for the employer.
• The executive owns and controls the policy, including access to the policy’s cash value and the ability to designate beneficiaries to receive the death benefit.
• When properly structured, the policy can be used to generate tax-free retirement income via policy loans and withdrawals.
• In the event of the executive’s death, their designated beneficiary receives the full death benefit.

Split Dollar Life Insurance Plans

• Executives can obtain life insurance coverage and have their employer assume responsibility for premium payments.
• Upon the executive’s death, the employer is reimbursed for the total premiums paid from the policy’s death benefit.

Supplemental Disability Income Insurance

• Standard group long-term disability (LTD) policies typically cover 60% of an employee’s income, up to a predetermined maximum. For highly compensated executives, this cap may result in coverage that replaces less than 50% of their actual income.
• To address this gap, employers can purchase individual supplemental disability income insurance, ensuring that executives receive a benefit level comparable to that of other employees.

Offering executive benefits is a strategic investment in the leadership that propels your organization forward. By providing tailored incentives that acknowledge the unique contributions and value of senior talent, your organization can strengthen loyalty, support leadership continuity, and maintain a competitive edge in today’s dynamic business environment. Connect with the AssuredPartners team today to begin exploring how executive benefits can enhance your organization’s leadership strategy.