Executive Benefits

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Your company's future hinges on the quality and devotion of your executives. Therefore it is imperative that you attract and retain the right people. Today's executive looks well beyond base salary to the total compensation package. Executive benefit programs are an integral part of this package.

The basic group life and disability programs may be fine for most employees, but they are far less valuable to the higher-paid executives. Maximum benefit provisions and limits on allowable income prevent many executives from attaining the level of income replacement or retirement security that they desire.

The professionals at Evergreen Management can work with you to design a plan that is right for your company.

 Deferred Compensation Plans

Deferred Compensation Plans are non qualified, supplemental plans that allow an executive the ability to defer compensation, whether salary, bonus and/or stock option gains, to some future date. Deferred Compensation Plans have several advantages to the employer such as aiding in the recruitment and retention of key executives and positively impacting long-term financial earnings for the company. Executive benefits include the reduction of current tax liability and the ability to significantly enhance retirement income above the constraints of qualified plans.

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Executive Life Insurance Plans

Group insurance benefits, while serving as the standard for rank and file employees, are ineffective and expensive for senior executives. Many companies provide plans which are specifically tailored for executives. Typically, these plans can provide more meaningful benefits for the executives, while lowering company costs.

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401(k)Overlay Plans

Overlay Plans are a type of non qualified benefit plan designed specifically for the highly compensated employee whose contribution to a traditional 401(k) is limited by ERISA non-discrimination rules.

Companies and executives like 401(k) Overlay plans because:

• They mimic the companies traditional 401(k) plan
• They alleviate restrictions imposed on 401(k) plans by ERISA.
• They provide an opportunity to shelter compensation from current  income and provide a convenient means for wealth accumulation.

The ability to defer income to a later date and thereby reduce current income tax exposure can have a dramatic effect on capital accumulation. In the following example we show an executive, currently age 50, who is willing to save $30,000 per year for the next 15 years and who wishes to retire at age 65. In "Scenario 1" we assume that the executive will accumulate capital through personal investing. Therefore, he will take $30,000 of annual compensation and, assuming a 39% tax bracket, be left with $19,500 of net after-tax compensation to actually invest. We have assumed a gross earnings rate of 10%, so the net after-tax return is 6.1%. Under these assumptions, the executive would have $455,391 in his account at age 65 and would receive a net after-tax benefit of $44,482 per year for 15 years.

Under "Scenario 2", the executive elects to defer the same $30,000 of annual compensation and since there is no current income tax on that amount, the full $30,000 is invested. The same earnings rate of 10% is used, but, since there is no taxation to the executive, the full 10% is credited to the executives account. The executive will have $1,048,492 in his account at age 65, which will provide an annual benefit of $76,444 for 15 years.

These scenarios are hypothetical and not representative of any particular investment.

Investors should consider their personal investment horizon and income tax bracket, both current and anticipate, when making investment decisions, as these may further impact the results of the comparison.

The lower maximum tax rates on capital gains and dividends would make the return of the taxable investment more favorable, thereby reducing the difference in performance between the accounts shown.

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Supplemental Executive Retirement Plan (SERP)

A Supplemental Executive Retirement Plan (SERP) is a concept whereby an employer promises to provide a retirement benefit to an employee as an incentive. The financial vehicle used to fund the SERP is often Life Insurance. The employer purchases the policy, pays the premium and names itself as the owner and beneficiary. The amount of premium paid and the amount of death benefit applied for on each employee is determined by the retirement benefit promised to the employee upon retirement. The premiums accumulate at competitive interest rates on an income tax-deferred basis. Upon retirement, the employer accesses the values and transfers them to the employee as taxable retirement income. Death benefits payable to the employer can be used in a variety of ways. They can be used to:

• Provide a survivorship benefit to an employee's survivors
• Reimburse the employer for premiums paid
• Provide money to use for retirement benefits for other executives.

A Supplemental Executive Retirement Plan is usually considered to be a non-qualified Defined Benefit Plan. This is primarily because the amount promised to the employee upon retirement is usually a specific fixed dollar or percentage amount of the employee's earnings, without regard to any cost maximums the employer may incur. Identified below are some of the advantages of a SERP for both the employee and the employer.

Employee Advantages

• The employee is able to plan and provide for his/her retirement income without being taxed at his/her current tax bracket.
• In the event of pre-retirement death, a benefit can be left to the employee's personal beneficiary.

Employer Advantages

• Can save the costly expense and administrative burden of establishing a Qualified Plan.
• Freedom to choose which employees will be participants without  risking any anti-discrimination requirements.
• Life insurance policy cash values can be considered a corporate asset and these values are accessible the employer by way of tax-free policy loans.
• The policies can be structured in such a way that the cost of obtaining the life insurance can be recovered by the employer.

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Bank Owned Life Insurance