Altered Realities by Amy Ripplinger

Altered Realities: W hat Physicians Want

Five Prescriptions for NonProfits to Dispense Healthier Retirements This booklet challenges hospital-controlled nonprofits and tax exempt organizations to rethink the reality of their retirement plans and improve their ability to compete and hold onto highly compensated medical staffs.

hysicians employed by hospital-controlled, nonprofit organizations face a frustrating reality compared to their counterparts in the private sector. Regulations have bound their ability to accumulate significant retirement plan assets during their periods of peak earnings.

This altered reality also puts many nonprofit organizations at a major disadvantage in their attempts to attract, retain, and reward physicians and other highly compensated professionals.

For-Profit Advantages In the for-profit world, physicians often use a combination of IRC Section 401(k) elective deferrals and profit-sharing plan contributions to allocate to their tax-deferred plan account each year. The maximum allocation permitted by law is $49,000. Typically, the for-profit physician is fully vested in these contributions and the resultant earnings. Contributions are paid to a trust that is beyond the reach of the creditors of the corporation. The balance in the physician’s account grows tax-deferred until the physician elects to have the account balance distributed to him or herself—a distribution which typically follows the physician’s retirement or other termination of employment with the for-profit corporation. By comparison, physicians employed by hospital-controlled, nonprofit or tax-exempt entities have long been limited in their ability to save as well as for-profit doctors. Hospital-controlled entities are required to maintain their tax-qualified retirement plans for highly compensated physicians and staff. What’s more, they must aggregate those plans with the retirement plans already maintained by the hospital for its general employees in order to meet discrimination tests set by the Internal Revenue Code on relevant retirement plans. The aggregation rule states that all contracts issued by the same company to the same policyholder during any calendar year will be treated as one contract for purposes of computing taxable distributions. This rule often precludes hospitals from providing “retention” in their tax-qualified retirement plan benefits to the physicians of the hospital-controlled entity. Such a provision would involve costly modification of their qualified plans to cover all employees of the hospital.

IRC Restrictions Section 457 and 409A of the Internal Revenue Code imposed restrictions and limits on compensation amounts that physicians in a hospital-controlled, tax-exempt entity can defer each year under a deferred compensation plan. Chart I outlines these limitations. On top of this, the aggregate limit (also referred to as the 415(c) limit), is $49,000. This limit applies to employee and employer contributions. Chart I - 2009 Limitations on Retirement Plans

2009 Retirement Plan Contribution Limits Plan

Age 49 & Below

Age 50 & Above

401(k)

$16,500

$22,000

403(b)

$16,500

$22,000

457(b)

$16,500

$22,000

Under Section 457, deferred compensation in excess of specified annual amounts ($16,500 in 2009) is taxable to the physician in the year in which eligible deferred compensation is no longer subject to the physician’s ongoing employment; that is, when the physician is “vested” in the deferred compensation.

Risk of Tax Rate Increase Tax deferred plans have lost some of their appeal due to the risk of future tax rates. If you think tax rates will rise, then why tax defer compensation today, only to receive it at a higher rate in the future? Today, most professionals focus on distribution rather than accumulation because “it’s not how much you make, but how much you keep.” No one knows what income tax rates will be when they retire. Chart II illustrates how tax rates have changed over the years. Chart II - History of U.S. Top Income Tax Rates Moving from a 35 percent tax bracket into a 50 percent tax bracket is a direct and painful reduction in your retirement income. However, there are alternatives which can produce nontaxable income at retirement.

Time for Change It is this tax provision that renders tax-exempt organizations less competitive, and unable to move freely to recruit, reward, and retain their best talent. The time to think differently is now. Thankfully, there are alternative therapies to rescue nonprofit doctors from retirement anemia.

Workable Alternatives Depending on strategic objectives, your nonprofit or tax-exempt entity may wish to consider one or more of the following alternative plans: §457(f); Split-Dollar; Executive/Professional Bonus Plans; the Professional Security Plan, and Nonprofit Executive Severance Trust. Let’s examine these alternatives more closely.

Alternative #1: IRC §457(f) For example, a physician in 2009 can elect to defer $16,500 under a 403(b) or 401(k) plan, as well as defer $16,500 of otherwise currently taxable income under an “eligible” §457(b) plan. The physician will then be contributing a total of $33,000 towards retirement. Plus, as mentioned earlier, if the physician is 50 years of age or older, he or she can defer an additional $5,500 by the end of 2009. Beyond these limits, the physician must rely on “ineligible” §457(f) plans. He or she can defer unlimited amounts of compensation, subject only to a “risk of forfeiture,” if the physician elects to voluntarily terminate employment prior to a targeted retirement date. We’ll discuss later why this may not be a wise choice. An illustration will be helpful: Assume that a 55-year old physician, who earns $300,000 annually, and is employed by a tax-exempt, hospital-controlled entity, plans to retire at 62. Let’s call him Dr. A. Understandably, he wants to significantly increase his deferrals during the ensuing seven years to make retirement possible. Our overworked and motivated physician, Dr. A participates in a 403(b) plan (the only retirement-type plan offered by the employing entity), and makes the maximum deferrals permitted by law in 2009 ($16,500 plus the $5,500 “catch up” contribution). Dr. A’s employer—Partners Hospital—provides for him an eligible 457 plan, referred to as a §457(b). As discussed above, Dr. A can double up on his $16,500, plus add a $5,500 “catch up” contribution, which tax defers a total of $44,000 or approximately 14 percent of his income. Dr. A can be fully vested in this additional deferral, but the deferred amount (plus earnings on the deferred amounts) must remain 4

“unfunded.” Alternatively, it can be funded by Partners Hospital in a Rabbi Trust; however, the assets must remain subject to claims of Partners’ general creditors. Added benefit security is always wise, and we offer some suggestions later in the text. In addition to the contributions made above, Dr. A can also defer an unlimited amount of extra compensation pursuant to an ineligible 457 plan, referred to as §457(f). He may elect to defer an added $100,000 in 2009—an amount deducted from his salary or bonus, and invested in the plan (usually in taxable investments) as determined by Partners and Dr. A together. If this $100,000 deferral (and its earnings) are funded in a Rabbi Trust, it will still be within the reach of the Partners’ general creditors. This arrangement is unsecured and the deferral and earnings are “subject to a risk of forfeiture.” If Dr. A voluntarily elects to terminate his employment prior to age 62 (targeted retirement date pre-selected by him), then the $100,000 and its earnings are forfeited. If he stays until his retirement date, the funds will be paid and subject to federal income tax. These terms track with whatever payment arrangements he pre-elected. IRC Section 457(f) benefits are taxable to the participant when those benefits are no longer subject to a substantial risk of forfeiture. Notice 2007-62 advises nonprofit and tax-exempt organizations that a number of rather popular IRC Section 457(f) features will not be considered to be subject to a substantial risk of forfeiture under the upcoming guidance. Clearly, this type of plan, a 457(f), offers the organization a great retention tool at a time when all competitive advantages are needed. However, in our practice, we speak to many physicians and most are unwilling to risk deferrals and be subject to the “risk of forfeiture”. Of course, severance protection can be built into the plan to protect physicians against employer termination prior to reaching age 62—for reasons other than cause. Here’s the crux of problem:

“Why should a physician put his or her additional salary or bonus deferrals at risk in a §457(f) arrangement?” We established that nonqualified deferred compensation plans in nonprofit and tax-exempt organizations are subject to IRC §457 and will be eligible and ineligible. These plans work well with a variety of objectives: Organization wants to incentivize physicians or highly compensated staff to stay put. A 457(f) plan with a vesting schedule at or near retirement is suitable. Three to five year vesting schedules on each contribution offer a 5

weaker version of golden handcuffs; however, are more prevalent. Normally, the organization pays out the benefit once the participant vests. The participant always leaves some money on the table if departing before retirement. Voluntary contributions are more problematic. Organization wants to provide a cost neutral benefit. This benefit can be achieved with certain funding strategies. Physician wants to tax-defer compensation. Physician is willing to undertake substantial risk of forfeiture. In our experience, this willingness is unlikely on voluntary deferrals. Typically, organizations fund a 457(f) plan with taxable investments or Exchanged Traded Funds (ETFs) since there is no need to shelter the taxation of the asset held at the organization’s level. For those organizations that seek full or partial cost recovery, the purchase of life insurance is advisable. Remember, these plans are subject to the requirements of IRC §457(f) and §409A.

Alternative #2: Split-Dollar Arrangements A Split-Dollar plan is a versatile planning tool used by many nonprofit and tax-exempt organizations. Simply put, it is a funding arrangement that helps the participant/physician (employee or contractor) obtain retirement and death benefits at a cost lower than otherwise possible. The organization pays premiums on a life insurance policy owned by the participant, but retains a “collateral assignment interest” in the policy equal to the sum of the premiums (their contributions) it has advanced (loaned). Premium advances are treated by the IRS as a loan and the participant pays taxes annually based on the Applicable Federal Rates (AFR). These arrangements are designed to provide participants with death benefit protection and also to provide a source of retirement income (from the cash value build up in the policy). These plans work well in these circumstances: Organization wants to provide a death benefit, as well as a supplemental retirement plan to its highly compensated employees and/or contractors. Organization wants to recover its cost with a cost neutral benefit plan. Many hospital-controlled, nonprofit organizations have successfully combined the 457(f) plan with a Split-Dollar arrangement. With this combination, the organization enters into a §457(f) arrangement that promises the participant an annual contribution (may be based on performance), with contributions deposited into the Split-Dollar arrangement. IRS Notice 2007-34 requires Split-Dollar arrangements in writing and conform to §409A.

At retirement, the participant uses the ยง457(f) benefits, contributions set aside earlier by the organization, to satisfy obligations under the Split-Dollar collateral assignment. The ยง457(f) benefit is treated as taxable income to the participant at that time and the participant receives the full value in the policy. Again, at retirement, the participant vests in the full cash value of the Split-Dollar life insurance policy and can use that cash to supplement income. Many of these arrangements use Variable Universal Life Insurance to provide cash build up similar to the taxable investments in a 403(b) plan. The key is to secure a high cash value policy that is institutionally priced. In this way, the participant realizes 100 percent cash value in year one, with no surrender charges.

Alternative #3: Executive/Professional Bonus Plans Under this strategy, the organization selects either a cash value life insurance policy or a mutual fund account for participants, using after-tax dollars it contributes. Then, the organization makes a contribution to the account, which is owned and controlled by the participant. The account is treated the same as a bonus to the participant for tax purposes. Although the participant is taxed on the bonus, the funds are directed to the life insurance policy or mutual fund account under his control. From a tax standpoint, most participants prefer the life insurance policy because the cash value, which is normally a family of taxable investments, grows taxed-deferred and they can access income at retirement on a non-taxable basis. The participant usually pays insurance cost versus taxes on the taxable investments, as illustrated in Chart III. Chart III - Taxable Investments vs. Insurance Funding

Taxable

Executive/Professional Bonus Plans

Investments

Year One

Life of Plan

7.50%

0.50

7.00

Taxes @ 40%

2.80

Insurance Fees

1.10

0.37

4.20%

5.90%

6.63%

40%

16%

Gross Return Investment Fees Net Return

After-Tax Yield Impact of Taxes / Insurance Loads (% Of Net Return)

By applying these funds to purchase a life insurance policy—again, under the participant’s ownership and control—he earns income tax-free cash value build-up, accessible via withdrawals and loans for supplemental retirement income in later years. This arrangement offers solid flexibility since it is not subject to §409A restrictions. Importantly, the Executive/Professional Bonus Plan offers the participant both a death benefit and non-taxable income through the policy withdrawals. As in Split-Dollar, it is important to use an institutionally priced insurance contract with Executive/ Professional Bonus Plans, with 100 percent cash value and no surrender charges. These contracts are normally only used by major corporations to fund deferred compensation plans but, on a limited basis, could be offered to your nonprofit or tax-exempt organization. Funding product evaluation is important. These arrangements work well under these circumstances: Participant wants flexibility and control of assets. Participant believes tax rates will increase in the future. Organization wants a simple arrangement. Organization and participant want a tax-deferred device not subject to restrictions under §457(f) and §409A. From a retention standpoint, many organizations use a “restricted bonus arrangement” to tie the participant closer to the organization. It requires the participant to reimburse some or all of the organization’s contributions if he departs within a specified time. Primarily, these arrangements are funded with life insurance; however they can work with taxable investments as well. A restrictive endorsement can be placed on the policy to limit the participant’s ability to access the cash value without the consent of the organization. The restrictive bonus arrangement works well under these circumstances: Organization wants to provide retention of its highly compensated employees or independent contractors; Participant wants flexibility and control of the asset; Organization wants a simple arrangement; Organization and participant want a plan not subject to the limits or restrictions of §457(f) and §409A. 8

Chart IV - Sample Illustrations for The Professional Security Plan Sample Executive Age 50 Net Crediting Rate: ALR Interest Rate:

Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41

Age 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90

7.0% 4.0%

ALR Percentage:

Cash Cash ALR Total Surrender Premium Premium Premium Value 30,000 20,000 50,000 32,647 30,000 20,000 50,000 68,201 30,000 20,000 50,000 106,883 30,000 20,000 50,000 146,755 30,000 20,000 50,000 182,971 30,000 20,000 50,000 222,262 30,000 20,000 50,000 262,854 0 0 0 273,134 0 0 0 281,010 0 0 0 300,527 0 0 0 322,287 0 0 0 345,314 0 0 0 369,732 0 0 0 395,622 0 0 0 423,169 0 0 0 452,347 0 0 0 483,430 0 0 0 516,557 0 0 0 552,006 0 0 0 589,737 0 0 0 630,445 0 0 0 673,900 0 0 0 720,445 0 0 0 769,989 0 0 0 822,912 0 0 0 879,083 0 0 0 938,821 0 0 0 1,002,242 0 0 0 1,069,238 0 0 0 1,140,200 0 0 0 1,215,659 0 0 0 1,295,256 0 0 0 1,379,613 0 0 0 1,469,084 0 0 0 1,564,150 0 0 0 1,664,305 0 0 0 1,769,903 0 0 0 1,881,305 0 0 0 1,999,437 0 0 0 2,124,110 0 0 0 2,256,301

40% No Distributions

A fte r-ta x Co n trib u tio n s

Net Death Benefit 859,682 838,079 815,626 792,262 767,969 742,688 844,942 847,198 845,303 864,458 888,400 912,949 938,517 965,276 993,653 1,023,255 1,054,554 1,087,490 1,122,392 1,158,822 1,197,760 1,238,719 1,282,258 1,328,334 1,377,400 1,428,920 1,483,415 1,540,616 1,600,607 1,663,988 1,731,811 1,803,216 1,879,384 1,960,330 2,046,699 2,137,540 2,233,688 2,335,626 2,444,791 2,560,555 2,684,164

Cash Surrender Distribution Value 0 32,647 0 68,201 0 106,883 0 146,755 0 182,971 0 222,262 0 262,854 0 273,134 0 281,010 0 300,527 0 322,287 0 345,314 0 369,732 0 395,622 0 423,169 0 407,812 0 391,730 0 374,901 0 357,391 0 339,033 0 320,144 0 300,395 0 279,819 0 257,833 0 234,249 0 208,770 0 181,282 0 151,696 0 119,643 0 85,055 0 93,004 0 101,323 0 110,147 0 119,545 0 129,537 0 139,964 0 150,784 0 162,053 0 173,955 0 186,509 0 199,910

2 1 0 ,0 0 0

N o n -T a x a b le R e tire m e n t B e n e fits A fte r T a x I R R o n R e tire m e n t B e n e fits

0 0%

I n c o m e T a x Fre e D e a th B e n e fit A g e 8 2 A fte r T a x I R R in c lu d in g D e a th B e n e fit

1 ,8 0 3 ,2 1 6 7 .6 6 %

With Disributions Net Death Benefit 859,682 838,079 815,626 792,262 767,969 742,688 844,942 847,198 845,303 864,458 888,400 912,949 938,517 965,276 993,653 941,608 890,661 840,552 791,369 742,587 694,741 647,305 599,482 567,042 539,888 509,674 476,606 440,288 400,660 359,235 359,250 359,415 360,345 361,821 364,184 366,705 369,814 373,482 378,411 383,983 390,788

2 1 0 ,0 0 0 6 3 0 ,8 9 4 6 .1 0 % 3 5 9 ,4 1 5 7 .4 9 %

Notes: This hypothetical illustration is based on the assumptions presented and shows how the performance of underlying accounts could affect a policyâ&#x20AC;&#x2122;s cash value and death benefits and should not be used to predict or project investment results. Loans and withdrawals reduce available cash value and reduce the death benefit or cause the policy to lapse.Â Actual returns may vary. Variable Universal Life Insurance is available by prospectus only.

Distribution 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 42,060 0 0 0 0 0 0 0 0 0 0 0

Alternative #4: Professional Security Plan (PSP) The PSP features many of the characteristics of the Executive/Professional Bonus Arrangement with a few major differences. Both were designed on the premise that some percentage of retirement savings should generate non-taxable income during retirement, and remain safe from creditors of the sponsoring organization. Chart IV illustrates the mechanics of the PSP. It achieves its tax-advantaged status by virtue of an institutionally priced Variable Universal Life (VUL) insurance policy, not available to individuals. Institutionally priced simply means that the policy’s charges are significantly lower than comparable retail VUL products. It is essential that one does not confuse this type of VUL with that typically offered by a financial planner or advisor. In that case, the VUL is designed to provide life insurance protection with the cash value growing in variable (mutual fund type) accounts. The policy used in the PSP focuses on cash accumulation. One must purchase the minimum amounts to qualify the product for tax deferred growth. Transparency is an added benefit of a PSP policy because all policy costs are disclosed. One need only weigh the costs of paying taxes on an individual mutual fund investment against the cost of the insurance wrapper with tax-deferred build up to appreciate the power of the PSP. The PSP provides this policy to the participant with contributions made with after-tax dollars. The cash value (taxable investments) grows tax-deferred and all distributions are withdrawn on a non-taxable basis via withdrawal and loans. For these reasons, the PSP shares performance characteristics with a qualified Roth, (after-tax contributions, tax-deferred growth, and non-taxable withdrawals) without the contribution limits imposed by the IRS. However, two additional differences arise:

1. As discussed earlier, the PSP provides the power of pre-tax savings without the contribution limits or age restrictions of qualified plans, achievable through a unique loan feature designed in the policy, which allows a participant to take a non-recourse, “tax restoration” policy loan to restore taxes paid on the amount of any after-tax contribution (see Chart V) based on a $100,000 pre-tax contribution. The nonrecourse policy loan and any associated interest is simply deducted from the death benefits, assuming the policy is held until death.

Chart V - Tax Restoration Concept

Pre-tax Compensation

Taxes on Compensation*

Loan from Insurance Company**

$40,000

$40,000 Total Premium Paid

$100,000

$100,000 $60,000

$60,000

Net After-Tax

Premium to Insurance Policy

* Assumed 40% tax rate ** Loan and source of loan is optional. If policy loan is utilized, it is nonrecourse.

2. The PSP policy also offers a “Cash Value Enhancement” feature that provides certain contractual

guaranteed returns to the policy in the first 10 years. With the PSP, the participant can deposit the $60,000 in his account, and the policy tax restoration loan feature increases the balance to $100,000, the pre-tax amount of the bonus (illustrated in Chart V). He then can invest the pretax amount in 60 plus investment alternatives called “sub-accounts” from fund managers such as Fidelity, Franklin Templeton, American Funds, and others. The policy has an Enhancement Value Rider (ESVR), which may enhance the cash value if he surrenders the policy in the first 10 years for any reason. Chart VI and VII explain how this works.

Chart VI - Cash Value Enhancement Year

Target Annual Return on Premium

Maximum Enhancement Rate

7.0%

16.0%

7.0%

15.0%

7.0%

15.0%

6.0%

12.0%

5.5%

9.0%

5.0%

7.0%

4.0%

5.0%

3.0%

2.0%

1.0%

The Enhancement Surrender Value Rider pays, “upon surrender of the policy”, the current cash value (minus any withdrawals or loans) on the targeted return (7 percent during years 1-3). However, the Enhancement Surrender Value Rider caps the payout (16 percent in year 1) to that percentage of the accumulation value in the policy. Chart VII gives three examples to help clarify the value. Let’s look at a few examples on how the Enhancement works.

Chart VII – Enhancement Surrender Value Rider Examples Policy Year 1

Example #1

Example #2

Example #3

Cash Premium (Participant Contribution)

$60,000

ALR (Tax Restoration) Premium

$40,000

Cumulative Premium

$100,000

Account Value

$108,000

$94,000

$82,000

ESVR Target Return (107% of Cumulative Premium)

$107,000

$0.00

$13,000

$16,000

ALR (Tax Restoration Loan) Balance

$41,600

Net Cash Surrender Value

$66,400

$65,400

$56,400

ESVR Amount (Up to 16% of Cumulative Premium)

Example 1 — Individual has experienced a gain greater than the ESVR targeted amount. Therefore, the ESVR provides no enhancement to Net Cash Surrender Value. Example 2 — Individual has experienced a loss. ESVR of $13,000 is applied to gross up to the ESVR Target Value. If this individual was to surrender at the end of year one, a gain of about 9% cash on cash ($5,400 on $60,000) would be realized. Without the ESVR, a loss of about 13% ($7,600 on $60,000) would be realized. Example 3 — Individual has experienced a loss. ESVR is applied at its maximum. If this individual was to surrender at the end of year one, a loss of only about 6% cash on cash ($3,600 on $60,000) would be realized. Without the ESVR, the loss realized would have been about 33% ($19,600 on $60,000). Note: The above examples are hypothetical and cannot be relied on for your individual account.

Alternative #5: Nonprofit Executive Severance Trust Nonprofit Executive Severance Trust (NEST) is an employee benefit program that provides participants with secure, pre-funded severance benefits. Contributions made by the organization assure that the money is available for the participant at the occurrence of a severance event. NEST enables an organization to design the severance arrangement to reflect its goals and objectives, and pre-funding allows for crucial budgeting of contributions. NEST not only helps terminating employees leave on a mutually favorable basis, it also allows the organization to attract and retain top professionals by providing additional fringe benefits with financial security. In the unique nonprofit environment, security conscious executives and professionals are demanding more flexibility in employment plans. In response, NEST offers more paths to financial security than ever before. Flexibility is a fundamental aspect of this program and thus enables the sponsoring organization to tailor the benefits to best fit their individual circumstance and organizational philosophies. On the organizational level, NEST rewards top level participants with cash incentives created by a predetermined severance agreement between the organization and key employee or professional. This agreement can provide the organization with tools to manage their highly compensated professionals while instilling assurance and security in those same professionals in the event of termination due to events beyond their control.

Let’s explore how the NEST works. The sponsoring organization funds the NEST program through the use of a taxable trust. To fund the trust effectively, most organizations use life insurance or tax-exempt bonds. These vehicles eliminate the tax impact on the trust assets. Investments grow tax-deferred until non-qualifying voluntary separation (such as retirement) or a qualified NEST “trigger” event, which is defined as an employer termination or voluntary termination “with good cause.” Either event is initiated by an employer action.

In the case of voluntary separation “without good cause,” the NEST assets remain in the trust to be used to fulfill other NEST obligations. However, in the event of termination or voluntary termination with “good cause,” the NEST settlement (maximum two times annual compensation) is sent to the Trustee to determine if payment is due. If the Trustee determines that separation meets the NEST qualifying criteria, settlement is awarded to the separated individual. The NEST program has been designed by a leading national law firm to serve the career needs of executives and professionals of nonprofit and tax exempt organizations by providing severance and death benefits. NEST also allows the organization to provide professional staff with secure severance benefits of up to two years final pay. Let’s recap and expand the full benefit package of NEST: Since NEST is a severance program for executives and professionals, the cash in the trust is available to pay severance benefits. Participants receive up to twice their last 12 months’ compensation for involuntary severance or voluntary severance for a valid business purpose. NEST provides financial security to key executives who are vulnerable to the effects of mergers, acquisitions, restructuring, layoffs, or bankruptcy of the organization. Participants receive benefits due to forced retirement, changes in compensation or job duties and other involuntary circumstances, disability or death—one reason why the NEST works well with a 457(f) plan that vests at retirement. Participants are able to secure life insurance protection (if the trust is funded with insurance), the proceeds of which pass to the family, free of income and estate taxes. NEST can provide asset protection from the organization’s creditors. Funds are placed in a trust and removed from the organization’s use. Additionally, plan assets are protected from all events of the organization. Although the plan cannot be terminated in the future, assets can revert to the organization once all severance obligations are satisfied. The organization can use the assets to offset the cost of other health and welfare benefits for its employees. The NEST program works well under these circumstances: Organization provides the participant with a 457(f) plan that 13

vests in the future. The NEST then provides needed security if participant is terminated prior to vesting. Organization wants to retain key employees and professionals and provide them with a secured benefit. Organization that has an unfunded severance benefit for key employees and professionals.

In Summary Of the five prescriptions outlined in this article, one or more will enable you to improve the retirement sufficiency of your physicians and highly compensated staff. Equally important, your organization will compete for talent far more effectively. During times of uncertainty, organizations must do everything in their power to stabilize their own foundations by building a best practices approach to manage talent capital. One or more of our five prescriptions will plant you on the road to wellness and lead your organization the way forward.

Retirement Capital Group, Inc. (RCG) is a full service executive benefits firm that is committed to helping companies attract, retain, and appropriately compensate and reward their talented executives. This is accomplished first with a thorough assessment of a companyâ&#x20AC;&#x2122;s goals, financial and tax status, and more. RCGâ&#x20AC;&#x2122;s recommendations are customized to meet each clientâ&#x20AC;&#x2122;s needs. Only then will an innovative and appropriate solution unfold that will meet expectations and deliver the intended results.

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