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Case Study

How we helped a nonprofit organization (IRC Section 501(c)(7)) retain key employees in a highly competitive labor market.

Subject

Efforts to retain exceptionally talented employees to maintain
culture, avoid business disruption, executive search expenses and
retraining costs.

Objectives

  • Enhance retirement program for the benefit of key employees
  • Maintain corporate culture by retaining exceptionally talented employees
  • Provide certain employees benefits in excess of the limits imposed by IRC Section 415

Process

  • Met with executive committee to understand the impact key employees had on corporate culture
  • Consulted with executive search firms to understand the labor market for employees with similar skill sets
  • Quantifying the executive search costs and available pool of talent
  • Met with key employees to better understand their goals and concerns regarding their retirement plans

Strategy

  • Identified opportunity to complement the company’s qualified retirement plan (QRP) with a Top-Hat Plan (non-qualified retirement plan) to provide excess benefits to key employees.
  • Consulted with a nationally recognized ERISA (Employee Retirement Income Security Act) and executive compensation law firm.
  • Created a document addressing ERISA rules for top-hat plan exclusion: Unfunded plan with a primary purpose of providing deferred compensation for a select group of management or highly compensated employees.
  • Established a rabbi trust for the purposes of setting aside assets to pay benefits out of a top-hat plan without “funding” the plan thereby compromising special carve-out from ERISA requirements.
  • We were able to consider the rabbi trust unfunded by including a provision subjecting funds to sponsors' general creditors in the event of insolvency.
  • Used IRS Revenue Procedure 92-64 for rabbi trust language.
  • Established quarterly “funding” schedule for a five-year period with the option of extending the program for an additional five years – funding adjusted for inflation.

Results

Client has structure and process around decision-making for exercised options and remaining ISOs. Funding of retirement and financial plan has been initiated. Portfolio risk has been significantly reduced.

Estimated tax savings: $437,179.00

Client feels confident this program will result in the retention of their most talented employees for the foreseeable future. This will support their strong growth rates and a carefully developed, best-in-class corporate culture.

LTax is a boutique tax firm emphasizing personalization, communication, and
initiative-taking responsiveness.

We take a consulting approach to tax preparation and planning, ensuring regular client communication and a personalized understanding of our clients’ needs. We tirelessly research tax mitigation strategies and develop actionable recommendations for the benefit of our clients.

 
Our Solutions
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Adam Raschke, JD

Director, Tax Practice Lead

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