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Keeping
Key Employees - Using Selective Retirement Plans
Selective
Executive Retirement Plans have become an important part
of the business owner’s life. These plans come in all
varieties and there are many names for them. You may have
heard of some…deferred compensation, executive bonus
plans, restricted endorsement plans, phantom stock plans,
split dollar and reverse split dollar among others.
Selective
Retirement Plans can be used to provide supplemental retirement
benefits for both owners and key employees of a company.
Their popularity has been spurred on by the restrictive,
penalizing nature of qualified retirement plans, such as
401(k) plans. As you know, higher compensated employees
are limited in the amounts that can be contributed to the
401(k) plan based on the level of participation from the
non-highly compensated group. In many ways this can be viewed
as a reverse discrimination issue because the higher compensated
employees are unable to accumulate as much money on a favorable
tax basis to their plan as their non-highly compensated
counterparts.
An employer
can choose to set up a profit sharing plan as part of the
qualified retirement plan. However, often the discrimination
issues do not make it worthwhile to do so. Depending on
the number of employees and the census of the company, the
profit sharing plan may or may not provide additional meaningful
benefits to the key people.
Most
important, the typical qualified retirement plan does not
serve to entice the company’s key people to remain
with the company. After meeting the requirements for vesting
under a qualified retirement plan, the employee is at liberty
to roll that money over if he leaves the company. It has
become his money.
A Selective
Retirement Plan can be designed in such a way as to entice
the ultimate benefactor of the plan to remain with the company
until a designated time that can be determined entirely
by the employer. If he leaves prior to that date, his benefits
are lost.
These
plans are unique in other ways as well. Most important,
you, the employer, decide which of your key employees you
wish to make part of such a program. You may choose one
or all of your key people to receive benefits and each of
them can have a plan that is unique. The planning opportunities
are really limitless.
Depending
on the type of plan implemented, the business may or may
not receive a current tax deduction. Again, your objectives
as the employer, the company’s tax bracket and its
form of business operation will help determine which type
of plan is best for you and your key people.
Please
watch our upcoming newsletters for more information on types
of Selective Retirement Plans and their use in your business.
And do give us a call if you would like a personal consultation
to determine how a properly designed Selective Retirement
Plan could impact your company.
Published
09/00/NL1/Web
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