Executive Deferred Compensation Plans

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

The 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.
  • Although contributions are not tax-deductible, through our proprietary model 100% of the contributions to the DCP are invested on behalf of the executive.

As a “Top-Hat Plan”, DCPs are the ultimate “golden handcuffs”. Only owners, “highly-compensated” and “key” employees may participate. The executive becomes vested only after meeting the retirement eligibility criteria established by the employer.

DCPs provide significant benefits to eligible executives as well.  In addition to elective contributions paid by the employer, executives may elect to defer a portion (up to 100%) of their compensation for additional, fully-vested contributions to the DCP.  Such deferrals are not taxed to the executive until they are distributed, but are subject to Social Security and/or Medicare taxes at the time of deferral. Upon the executive’s retirement, benefit payments will not be subject to Social Security and/or Medicare taxes.  Such payments are ordinary income to the executive and may not be rolled over into an IRA or qualified retirement plan (as provided under current law).  Distributions begin at the Participant's retirement, severance, total disability or death.

The benefits to executives include:

  • May defer up to 100% of W-2 income, lowering current income tax bracket.
  • Funds are held by an independent trustee in selected life insurance and annuity contracts, as well as other secure investments.
  • Choice of investments with respect to both employer and employee contributions using indexes and fixed-interest investments.
  • Achieve tax-deferred growth by investing in tax-deferred investments, including tax-exempt bonds, annuities, life insurance and tax-efficient funds.
  • Build retirement income to appropriate income replacement levels.
  • Choice of distribution form (lump sum or installments) as permitted by the employer.