In the last few years, the executive compensation market has really exploded again as the Great Recession resides, says Jim Clary, CEO, Clary Executive Benefits. Growth has trickled down from Fortunes 1,000 companies to small and mid-size employers, he adds, particularly for deferred compensation plans that market is growing very, very rapidly.
This is thanks in part to the number of executives who have moved from big firms to run smaller companies in the wake of the downturn. They bring with them an expectation that theyll have the same type of benefit plans they enjoyed at the large company, Clary, based in Scottsdale, Ariz., says.
This, combined with the awakening in the U.S. to the retirement savings crisis, has led employers to realize their 401(k) plans are too limited for the highly compensated. Mark Sulpizio, partner at New Jersey-based Innovative Benefit Planning, works with companies above 200 employees on such plans. Discrimination testing on 401(k) plans, due to the economy and rising health care costs, has been problematic.
If an employers plan doesnt pass testing, they will often turn to Sulpizio for a supplemental product for executive benefits, knowing top talent is normally retained through security, he says. They want to know, What else can we do?
Because of their non-qualified nature, plans can be tailored to custom-fit individual employers needs, and advisers should take advantage by bringing in an expert, say Clary and Sulpizio. Some will use a non-qualified plan as a retention tool, if, say, the owner plans to retire in 15 years and wants to ensure top staff stay. Others are simply concerned with making up for deficiencies in the plan. You can tailor it however you want to keep people here ... says Sulpizio.
It gives key employees a disincentive to look elsewhere. Talking about his own employees, Clary says, I wanted to maintain a benefit package that was a golden handcuff that would help trap good people and help retain those people once we had them.
More benefits
Other executive carve-out plans include supplemental disability and life insurance that, through the workplace, come at a discount lower than an executive could attain on their own, points out Curt Brown, director of ancillary sales at Todd Associates, Inc., in Beachwood, Ohio. Unlike deferred compensation plans, employers are less likely to bring up executive disability or life insurance plans. Typically, its something we have to go in and show them, he says.
Once introduced, employers are realizing they may not be providing enough protection for the highly compensated, says Scott Silverman, vice president at Chicago-based Pacific Resources. We are still very much under-insured, and the highly compensated are no different, he says.
Because traditional group disability or life plans are one-size-fits-all, the highly compensated are not being taken care of to the same percentage as others, Silverman adds. Executive benefit plans are not taboo, but employers are concerned not only about adding value but also around the optics of any plan itself. A lot of ways we educate and add value to our client base is to show them that we are not creating an executive perk, but we are actually creating an equalization, because there are gaps in protection that need to be filled in and you can do that through individual products.
