Retaining Top Talent: The Role of Executive Benefits and Retention Plans

In today's competitive business environment, retaining top executive talent is crucial for organizational success. Effective leadership is essential for navigating challenges and steering the company toward growth and stability. This blog post explores the importance of executive benefits and retention plans in attracting, retaining, and rewarding top-tier talent.

The Importance of Executive Benefits

Executive benefits are designed to provide higher levels of compensation and benefits to key employees, addressing supplemental retirement needs and pre-tax savings opportunities. These benefits offer tax advantages for both employers and employees, making them an attractive option for retaining and rewarding top talent. The following describes three common executive benefits.

Nonqualified Deferred Compensation Plans

Highly compensated executives often get frustrated at the annual limits imposed by the IRS on 401(k) savings as they plan for retirement. Nonqualified deferred compensation (NQDC) plans allow employees to defer pre-tax income over and above IRS limits. This allows your business to elevate your benefits to best-in-class status, effectively bridging the gap between broad-based group benefits and the requirements of top-tier employees.

This is how an NQDC works:

• Executives can defer compensation until retirement on a pre-tax basis.
• Account balances grow tax-deferred.
• Payout options for the executive are flexible. Payouts can be elected before age 59 ½ without the 10% IRS penalty.
• When properly designed and funded, full cost recovery can be achieved for the plan.

Key Executive Retention Plan

The key executive retention plan (KERP) is a strategic approach to financially incentivizing executives to remain with the organization long-term. Often referred to as "golden handcuffs," KERPs use company funds to create customizable incentives that reward loyalty while being tax-efficient and cost-effective.

This is how a KERP works:

• The company contributes a stated amount on a pre-tax basis to an account established for the participant.
• The participant manages the account balance, just as they manage their 401(k) balance.
• The participant’s account balance grows tax deferred.
• The participant must meet vesting requirements to be eligible for benefit payout. These vesting requirements are often significant in length to achieve the stated long-term retention objective.
• When properly designed and funded, full cost recovery can be achieved for the plan.

Supplemental Executive Life Insurance Plans

This is how a supplemental executive life insurance plan works:

• The employer pays the premium on a supplemental term life insurance policy for executives over and above what is offered for the group coverage.
• The policy owner is the executive. The policy provides a significant lump-sum payment to the executive’s family in the event of their death.

A Comprehensive Approach

Retaining top executive talent requires a comprehensive approach that includes both attractive executive benefits and strategic retention plans. By offering competitive compensation packages and creating financial incentives for long-term commitment, organizations can ensure they retain the leadership necessary to navigate the complexities of the modern business landscape.

Related Reading: Life Insurance as a Financial Tool for Businesses

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.