Executive Benefits
To realize an organization’s vision, deliver upon its mission and achieve key strategic and operational goals, it is imperative that total rewards programs are designed to help attract, retain and motivate key executives to drive performance.
Organizations and their boards that partner with Great Valley gain access to experienced health care, not-for-profit as well as for-profit consulting teams, leading research on all aspects of executive total compensation and rewards practices, and insights that support organizational change. Our comprehensive and integrated workforce solutions, which also include physician, advanced practice provider (APP) and employee compensation and performance strategies, are supported by our industry-leading compensation and productivity data, enabling us to advise our clients and help them achieve their strategic objectives faster.
As A Result Our Clients Can Better
- Attract, engage and retain the best executive talent to drive organizational performance through customized total rewards programs.
- Structure executive total rewards supported by our exclusive market practice data and competitive analyses.
- Benchmark market performance measures to inform and justify the alignment of executive rewards programs with desired organizational outcomes.
- Educate the board on environmental trends impacting executive total rewards programs and help to design the appropriate response to support the operating priorities of the organization.
- Develop programs to support leadership succession and talent management initiatives.
- Address compensation and benefits-related issues resulting from mergers and acquisitions.
- Identify and develop both existing and emerging roles as the industry changes and evolve.
Who We Help?
Non-Qualified Plan Benefits / Needs
Highly Compensated individuals are unable to save enough pre-tax dollars in their 401(k) and Profit Sharing plans to adequately create enough retirement income. It is incumbent on them to then save more dollars to close the retirement gap.
Highly Compensated individuals typically expect to retire at 80% of their pre-retirement income; however, qualified plans are limited on what percent of compensation can be saved. The gap in retirement savings is due to lost benefits created by legislative restrictions $19,000 maximum deferral limit into 401(k) plan (2019) plus $6,000 “catch-up” provision for participants over the age of 50.
Benefits of the Nonqualified Deferral Plan
Allows highly compensated employees to defer pre-tax income above 401(k) limits
Credits account balances with the same rate of return earned in the 401(k) account or a fixed rate option
Allows employers to make up lost 401(k) contributions (match or profit-sharing)
More dollars compounding on a tax-deferred basis
Important Differences Between Qualified and Nonqualified Plans
Nonqualified plans are regulated by IRC Section 409A.
Nonqualified plan participants are unsecured creditors and subject to risk of forfeiture (bankruptcy of employer).
In nonqualified plans, the corporation defers the tax deduction on any contributions and/or deferrals until paid to the executive.
In nonqualified plans, liabilities must be accrued and plan assets remain on corporate balance sheet and any taxable investment earnings are reportable by the employer.
Nonqualified plans are not protected by ERISA and are not subject to the reporting, funding, vesting, or fiduciary responsibilities of Title I of ERISA.
Nonqualified plans must satisfy Top Hat Rules.
Important Differences Between Qualified and Nonqualified Plans
Nonqualified plans are regulated by IRC Section 409A.
Nonqualified plan participants are unsecured creditors and subject to risk of forfeiture (bankruptcy of employer).
In nonqualified plans, the corporation defers the tax deduction on any contributions and/or deferrals until paid to the executive.
In nonqualified plans, liabilities must be accrued and plan assets remain on corporate balance sheet and any taxable investment earnings are reportable by the employer.
Nonqualified plans are not protected by ERISA and are not subject to the reporting, funding, vesting, or fiduciary responsibilities of Title I of ERISA.
Nonqualified plans must satisfy Top Hat Rules.
Factors in Choosing the Top-Hat Group
Determining Who is in the Select Group
In today’s market there is a strong focus to recruit, retain and reward your key executives. To accomplish this, companies are implementing Top-Hat plans known as Nonqualified Deferred Compensation (NQDC) plans that are “unfunded” and maintained by the employer. Top-Hat plans are exempt from the Employee Retirement Income Security Act of 1974 (ERISA) and given to the company’s key executives. These plans are focused on a small group of individuals who are “highly compensated”. According to the IRS, for qualified plans a highly compensated employee is one that has an income of $130,000 (2020).
The question for many companies is how to determine who falls in this select group of management. What makes this even more complicated is that ERISA provides no specific definitions of “select group”, “management” or “highly compensated employees.” There have been court cases that have helped to provide a framework on who may be considered, which are discussed below.
The factors to consider when selecting the group are both qualitative and quantitative, and include the following:
Compensation
Employees who are making more than double other employees are found to be in Top-Hat plans. Typically, when the difference between plan participants’ average salary and the average salary of employees is significant the plan is viewed more as a top-hat plan. In the case of Belka v. Rowe Furniture Corp. (571 F. Supp. 1249, D. Md. 1983), the average salary of the participant was three to four times that of the company average.
Participation
According the Journal of Financial Service Professionals, “a plan offered to as many as 18.7% of employees was too broad to be a Top-Hat plan, but a plan offered to as many as 15.34% was considered a Top-Hat plan.” This was evident in the case Darden v. Nationwide Mutual Insurance (717 F. Supp. 388 (E.D.N.C. 1989), where the plan was offered to the insurance agents who executed the standard agent contract, which ended up being 18.7%, and was considered too large. This is compared to the case of Demery v. Extebank Deferred Compensation Plan (B) (216 F. 3d 283, 2d Cir., 2000), where 15.34% were covered, and it was considered an acceptable size for a select group. Some reports say that 10-12% of the workforce is a more select group.
Positions
The type of positions and titles the individuals carry influences who is considered to be in a Top-Hat Plan. Generally accepted job titles include vice presidents and above, and in some cases, directors, assistant vice presidents and managers. In Demery v. Extebank, plan participants had various titles, but the plan was still limited to high valued employees and showed that even though it covered many titles it was still a select group.
Power and Influence
Those individuals that have power to influence the decision-making process and have more power to negotiate their benefits are considered to be Top-Hat status. These individuals also have a knowledge of the company’s finances. Employees who do not manage, have little ability to negotiate benefits and pay or have no top-level responsibility, are generally not includable in a Top-Hat plan.
There are many benefits to providing your top management with a Top-Hat plan, both for the employee and employer. Executive Benefits Network can play an important role in selecting a plan design and suggesting who can be included in a Top-Hat plan
