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Are Your Executives Saving Enough for Retirement?

Updated: Feb 3

If you are a CEO, CFO or Human Resources Executive, your leadership role includes looking out for the long-term interests of the company. You may be called upon to be a contributor or leader in the design and management of executive compensation and benefits. You have the opportunity to consider the value to the company of implementing or updating a non-qualified retirement plan for key executives.

A properly designed and well-communicated non-qualified retirement plan has the ability to:

  • Align executives’ incentives with company objectives

  • Include employee and/or employer contributions

  • Provide a vehicles for executives to overcome the hurdles they face in building an adequate retirement income through tax-deferred employer-sponsored vehicles.

Why do executives have hurdles?

They can’t save enough through employer-sponsored vehicles due to regulatory maximums and non-discrimination testing. Even if they are saving the maximum permitted amount, it will not be enough to create an adequate retirement income. High income earners must save a much higher percent of pay because Social Security provides a smaller proportion of their pre-retirement income than it does for lower income earners. For example, the maximum annual Social Security benefit for a person retiring at age 70 during 2015 is $42,012.

Are there other reasons to offer a non-qualified retirement plan?

Some companies design these plans to create golden handcuffs to help incentivize executives to drive improvements to profits or revenue growth.

Is there more than one type of non-qualified retirement plan?

There are many ranging from as simple as a 401(k) spillover plan to as complex as a phantom stock plan. Funding options range from no cash funding to participant-directed investment menus to Corporate-Owned Life Insurance.

Are non-qualified plans complicated to administer?

Although non-qualified retirement plans are not entirely free of rules and regulations, they can be creatively structured to meet singular or multiple objectives and can apply to one or more executives

If You Do Not Offer a Non-Qualified Plan:

  • Do you know why?

  • Should you periodically review how a non-qualified plan can contribute to talent acquisition and management?

If You Do Offer a Non-Qualified Plan:

  • Is it underutilized?

  • Is the plan’s design aligned with corporate objectives?

  • Is the plan achieving its intended purpose?

  • Is there an opportunity to restructure or expand the type of non-qualified plan you offer?

  • Does senior management regularly engage those that are eligible in a discussion about the intent and value of the non-qualified retirement plan?

Strategic partners, like retirement plan advisors and qualified legal counsel, can help you explore creative ways to structure your non-qualified retirement plan. Or, if you don’t have a non-qualified plan, experts can explain what to consider before starting one.

This blog is meant for educational purposes only and does not represent all facets of non-qualified retirement plans. The information in this blog is intended for “C” corporations.  Not-for-profit companies’ non-qualified plans are subject to different rules.

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