Case Study
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.
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