|
Executive Plans
 The Executive Nonqualified ''Excess'' Plan
A defined contribution deferred compensation plan that allows executives to defer pre-tax income in "excess" of qualified plan limits - potentially up to 100% of compensation. These plans are based on a contractual agreement between the employer and the executive(s) that results in the executive foregoing current compensation in exchange for a future benefit. - The Executive Nonqualified Defined Benefit Plan
A nonqualified deferred compensation plan where the employer promises to provide a supplemental retirement benefit for a select group of management or highly compensated employees. The company can choose to informally finance the future obligation or leave the obligation unfinanced.
The Executive Nonqualified Defined Benefit Plan
How it Works
This is a nonqualified deferred compensation plan where the employer promises to provide a supplemental retirement benefit for a select group of management or highly compensated employees. The company can choose to informally finance the future obligation or leave the obligation unfinanced.
Employee Advantages
- Plan can restore lost benefits due to IRS limitations and/or provide supplemental benefits to help meet their retirement goals.
- Employees can tailor benefit distribution options to meet their needs.
- There are no excise tax penalties for early distributions or mandatory distributions at age 70-1/2
- Employees are not required to make contributions and do not bear the investment risk of the benefit.
- Employees have Internet access to benefit information and "what if" calculations.
Company Advantages
- Company contributions lost due to IRS restrictions in qualified plans can be restored.
- The company can design discretionary and discriminatory incentive benefits to recruit, retain and reward valuable key employees.
- Assets accumulated to informally finance the plan remain an asset on the company’s balance sheet.
- The plan requires no nondiscrimination testing, minimum participation or Form 5500 filing, if set up properly.
Employee Considerations
- No loan provisions
- No rollover provision into an IRA
- Limited ERISA protection
- Contractual obligation versus fiduciary liability
- Rabbi Trust can help manage this risk
- Assets financing the plan are owned by the company and are subject to company creditors
Company Considerations
- The company takes investment risk by making a promise to pay a defined benefit
- Deferred income tax deduction versus a current income tax deduction
- Accrue future deduction as a Deferred Tax Asset to reflect timing difference
- Potential charge to earnings on the taxable investments or COLI assets purchased to finance the plan
- Administrative service fees
- Human resource time to communicate the plan benefits to eligible participants
The Executive Nonqualified "Excess" PlanSM
How it Works
The Executive Nonqualified "Excess" Plan is a defined contribution deferred compensation plan that allows executives to defer pre-tax income in "excess" of qualified plan limits - potentially up to 100% of compensation. These plans are based on a contractual agreement between the employer and the executive(s) that results in the executive foregoing current compensation in exchange for a future benefit.
Employee Advantages
- Each executive elects to defer additional compensation in excess of the qualified plan limitations on a before federal and state tax basis - subject to FICA like a 401(k)*
- Earnings in the Executive Nonqualified "Excess" Plan account accumulate tax-deferred
- No excise penalties for early distributions (10%) or mandatory distributions at age 70-1/2
- No annual limitation on contributions. An executive can defer up to 100% of eligible compensation if the company allows
- Tailored investment strategy through self-directed investment accounts
- Internet access to account information - valued daily
* Contributions to the plan may not be tax deductible for state income tax purposes in Pennsylvania.
Company Advantages
- Solves a problem by creating a way for highly compensated executives to exceed all deferral limits in the qualified retirement plan(s) on a pre-tax basis
- Lost benefits due to compensation and deferral limits in qualified retirement plans can be replaced for a specific group of executives selected by the company
- Assets accumulated to finance the plan are held as corporate assets and may enhance the company's balance sheet
- Earnings from the company assets financing the plan may grow tax-deferred depending on the financing option selected
- Can choose to make matching and/or incentive profit-sharing contributions on a per-employee basis
- Simple to administer
Employee Considerations
- No loan provisions
- No rollover provision into an IRA
- Contractual obligation versus fiduciary liability
- Assets are owned by the company and are subject to company creditors
- Election to defer income only once per year in advance of earning income
- Deferrals reduce wages for qualified plan contributions unless coordinated with "Excess" Plan
Company Considerations
- Deferred income tax deduction versus a current income tax deduction
- Potential charge to earnings on the taxable investments or COLI assets purchased to finance the plan
- Plan level administrative service fees
- Human resource time to communicate the plan benefits to eligible participants
|