With declining unemployment rates, wage growth is increasing and employers have vacancies, workers now have leverage, confidence and options. For banks competing for applicants, a full package of benefits can tip the scales for a candidate considering multiple offers.
A tighter job market requires an organization to market itself as an employer of choice, a situation that has led many banks to offer benefit programs that include benefit plans for executives as a means of obtaining a strategic advantage.
Under the Employees Retirement Income Security Act 1974 (ERISA), qualified plans must be offered to all employees of a company. A fringe or unqualified benefit plan, however, is a tax-deferred type of employer-sponsored retirement plan that does not meet most ERISA guidelines.
Since unqualified plans are not subject to the same regulatory requirements that apply to qualified plans, employers can provide benefits through unqualified plans to recruit and retain key employees – those who cannot. not be fully compensated by a combination of salaries and qualified plans because of both the cost and the compliance charges that arise when similar benefits are provided to all employees, and the limitations of the IRS benefits.
Unlike qualifying plans, non-qualifying plans may be offered to a select group of executives and / or highly paid employees. Some job titles typically fit this description – President, CEO, Senior or Executive Vice President, etc. – while other employees may be eligible depending on their level of remuneration and their responsibilities.
These plans are often used to fill retirement income gaps resulting from the limitations of qualifying benefit plans, while incorporating rewards based on targeted performance or other benchmarks.
Executive benefit plans provide flexibility in developing benefit compensation strategies, as they can be used to:
• Provide a replacement income in retirement on the basis of total remuneration (not limited);
• Reward, attract and retain key leaders;
• Replace benefits lost due to IRS limits on eligible plans;
• Offer benefits in addition to those of eligible plans;
• Defer compensation; and
• Offer increased benefits in the event of an acquisition or any other change of control.
The first consideration is to determine the goals you want to achieve with an unqualified program by analyzing which employees are affected by the IRS limits and which key employees you might wish to reward with coverage under an unqualified arrangement. . The organization needs to analyze how it wants to position its compensation and benefits programs relative to its competitors and how to best allocate its pension benefit dollars among various benefit vehicles – pension, savings and non-pension plans. eligible.
Once these parameters are established, the next step is to determine which type of unqualified plan best meets the needs of the organization. These may include:
Deferred compensation plans for officers and directors
These are typically established to provide a vehicle for key employees, highly paid employees, and directors to defer compensation until retirement. Arrangements can include deferred salary and bonuses as well as administrator fees, resulting in larger deferred tax dollars than can be made on an individual basis.
Supplementary pension plans for executives (SERP)
These are generally designed to reward executives and / or key employees. SERPs can be completely discretionary and designed to provide rewards arbitrarily or based on specific performance factors.
SERPs can be constructed in a number of ways, including as “defined contribution” or “defined benefit” plans. SERPs can be used to provide benefits based on a more generous formula than that used in a qualifying plan; can credit more years of service than under a defined benefit pension plan; or may even restore pension plan benefits lost due to various limits on IRS-eligible plans.
Executive Retirement Incentive Plans (PIRE)
Another type of SERP, EIRPs are designed to offer a reward to a selected group of participants if the organization exceeds key performance indicators, such as return on equity, return on assets, net income, quality of the loan portfolio, the growth of income from fees or the -Sale of achievements.
Your Total Rewards package is a key competitive resource for recruiting and retaining employees, and retirement benefits are an important part of this package. For banks competing for top talent, unqualified pension plans can be a game-changer.
Chuck Coldwell is vice president and national director of advisory, marketing and bank-owned life insurance (BOLI) services at Pentegra, a retirement services provider with offices in White Plains and Shelton. He can be contacted at [email protected].