Executive Deferred Compensation Plans

Employers seeking to recruit and retain key executives require a compensation package that goes above and beyond the limitations of what is commonly available to rank and file employees. In addition closely-held businesses have long sought for ways of providing benefits to owner-executives that do not require comparable benefits for other employees. A Deferred Compensation Plan ("DCP") is a form of nonqualified deferred compensation plan that offers the perfect solution to these problems. DCPs done though an outsourcing agreement with a benefits outsourcing organization are also an ideal deferral choice for pass-through entities such as partnerships, LLCs, LLPs, "S" corporations and sole-proprietorships.

Benefits to the employer include:

  • Employer contributions are flexible and elective.
  • The employer may select which executives to cover and discriminate in favor of key and highly-compensated employees.
  • While deferred compensation payments are not tax-deductible to the employer until distributed (or vested) to the executive, our exclusive deferred compensation outsourcing model provides funds for payment of the income taxes while permitting 100% of the contributions made to the plan to be invested on behalf of the executive.

DCPs are the "ultimate" golden handcuffs; benefits are not vested until the "key" employee terminates employment after meeting the retirement eligibility criteria selected by the employer.

DCPs provide significant benefits to key and highly-compensated executives as well. In addition to contributions funded by the employer, executives may elect to have the employer defer a portion (up to 100%) of their compensation for additional fully vested contributions to the plan. Deferrals are not subject to federal income taxes until they are distributed, but are subject to Social Security and/or Medicare taxes at the time of deferral. Distributions will not be subject to Social Security and/or Medicare taxes, but will be treated as ordinary income that may not be rolled over into an IRA or any qualified retirement plan (as provided under current law). Distributions will commence at the Participant's retirement, severance, total disability or death.

Benefits to executives include:

  • Choice of investments with respect to both employer and employee contributions.
  • Funds are held by an independent trustee in selected life insurance and annuity contracts, as well as other appropriate investments.
  • May defer up to 100% of W-2 income (subject to reasonable compensation limits under IRC §162), lowering the executive's current income taxes.
  • Achieve tax-deferred growth by investing deferrals into a selection of funds or a fixed-rate account.
  • Build retirement income to appropriate income replacement levels.
  • Choice of distribution form (lump sum or installments) as permitted by employer.

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