RCG
BENEFITS GROUP
Executive Benefits for Non-Profit Organizations
More Flexibility | More Choices Nearly half of today’s top executives working for non-profit organizations are age 55 or older*, indicating the potential for extensive turnover in the next 10 years. Is your organization prepared with an executive benefits program focused on helping you attract, retain, and reward your CEO or other high-level executives? RCG|Benefits Group has created programs for a number of leading non-profit organizations, including deferred compensation arrangements, severance programs, split-dollar insurance, supplemental retirement plans and more.
We have the benefits experience that is particular to the non-profit industry. In addition, we have stringent requirements for our benefit specialists. Each is well trained and highly experienced in the specific challenges and restrictions of precisely this kind of planning. Our Executive Benefits Programs will help your organization attract, reward, and retain the executives needed to lead your organization through the challenging and competitive times ahead. * Source: RCG|Benefits Group 2009 Survey
An executive benefits package from RCG|Benefits Group is not only crafted specifically for non-profit organizations, it is customized for you.
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Executive Benefits | Why now? Times have changed. Federal tax policies have changed. In order for you to be competitive, retain top executives and ensure stability for your organization, your executive compensation package must adapt to change as well. The most successful organizations are now taking a more strategic approach to executive compensation. Using an incentive-based compensation system helps assure that the organization’s goals are being met.
To deliver the kind of management your stakeholders deserve, you need an executive benefits program that performs well and makes your organization stronger. To create such a program on your own would require years of research and legal input, all at considerable cost. RCG|Benefits Group can assist you and your legal team in developing and delivering a cost-effective program that can help you, your executives and board make the decision that’s right for your organization.
Percent of Eligible High-Level Executives by Plan and Position Level Non-Qualified Deferred Compensation Plans President and Chief Executive Officers
89%
Executive and Senior Vice Presidents
90%
Vice Presidents
20%
78%
40%
60%
80%
100%
Supplemental Executive Retirement Plans President and Chief Executive Officers
83%
Executive Vice Presidents
71%
Senior Vice Presidents
63%
Vice Presidents
20%
51%
40%
60%
80%
100%
*Source: Clark Consulting’s 2009 Executive Benefits - A Survey of Current Trends
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Attract | Retain | Reward | Motivate All nonqualified deferred compensation plans aid in the areas of attracting, retaining, rewarding, and motivating key employees.
However, the plans can be structured to emphasize one of these areas over another.
Designed with ability to defer maximum compensation. Can also be structured to automatically defer signing bonuses for an acceptable period of time, eliminating the risk of new executives leaving the organization prematurely. Plan design offers provisions that result in the creation of “golden handcuffs” or “glue in the seat.” Vesting schedules, preferential treatment of payouts and company contributions can be treated differently to provide disincentive to look at alternative opportunities
Can be designed to reward executives in a taxadvantaged environment. Company contributions are discretionary so they may be made one year and not the next. Vesting requirements may or may not be imposed.
Can be designed to have contributions tied to achievement of individual or organizational incentives.
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The Programs | We Can Help Depending on the current size, needs, and goals of your organization and of the executives themselves, your customized executive benefits program may focus on one or more of the following available programs.
Non-Profit Executive Severance Trust Non-Profit Executive Severance Trust (NEST) is an executive 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. The benefits of a NEST are: The NEST can be designed to work in concert with the executive’s overall package. If the organization terminates the executive prior to vesting in the 457(f) program, the NEST can pay a benefit up to two times his or her total compensation. NEST benefits are ERISA* protected in case of the organization’s insolvency. * Employee Retirement Income Security Act of 1974.
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457 (b) Retirement Plan
For Employers, a 457(b) Plan:
This plan allows executives to defer a specified amount of their pre-tax income for investment in addition to the organization’s 403(b) plan. The amount deferred is not included as ordinary income, and as a result, executives do not pay income tax on it during the deferral years. Upon retirement or termination, they will receive their accumulated funds subject to their current, and often times lower, tax bracket. Utilizing a 457(b) Retirement Plan can have a significant effect on retirement funds:
Amount to be invested Tax at 40% Amount Available to Invest Net Result Compounded for 20 Years at 7% Total Difference
With
Without
a 457(b) Plan
a 457(b) Plan
$16,500 0 16,500
$16,500 6,600 9,900
405,855
300,996
$104,859
Assets in the 457(b) are subject to the sponsor’s insolvency and the participant must take a lump sum upon retirement or early termination.
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Can be funded with employee or employer dollars Adds another employee benefit to an existing benefits package Is easy to establish and maintain Helps attract, retain, and reward valued executives
For Employees, a 457(b) Plan: Can be funded with employer dollars Means lower taxes, with pre-tax contributions Allows for flexible contributions Allows tax payments to be deferred Allows earnings to be tax-deferred Does not affect IRA 403(b) or 401(k) contribution limits Allows an employee to double pre-tax contributions ($16,500 in 403(b) and $16,500 in 457(b))
For Employers, a 457(f ) Plan: Adds another employee benefit to an existing benefits package Can be financed with employer dollars that are returned to the employer when the plan matures Is easy to establish and maintain Helps attract, retain, and reward valued executives
For Employees, a 457(f ) Plan: Can be financed with employer dollars Allows deferred taxation of benefits
457 (f ) Supplemental Retirement Plan This plan allows executives to supplement their retirement by contributing to a tax-deferred plan that will be paid out at retirement. Ordinary income tax is paid on the entire value of the fund when there is no longer a risk that the money will be forfeited for non-performance of the agreement. This means that ordinary income tax will be paid on the entire amount in the plan in the year vested (which may or may not be at retirement). In the for-profit corporate world, 67%* of companies have a supplemental retirement plan. Use of a 457(f) Supplemental Retirement Plan can help not-for profit organizations compete and can be a valuable addition to existing retirement plans. These plans are typically funded with employer dollars that vest in the future, usually at retirement. *Source: Clark Consulting’s 2009 Executive Benefits - A Survey of Current Trends
Allows earnings to be tax-deferred Does not affect IRA 403(b), 457(b) or 401(k) contribution limits.
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Professional Security PlanSM The Professional Security Plan (PSP) is a customdesigned solution to provide life insurance and wealth accumulation for retirement. What sets the PSP apart from nonqualified pension or retirement plans like the 457(f) is the way investment gains are taxed. Contributions are made with aftertax dollars, but all earnings accumulate, tax deferred, on the pre-tax amount (if loan feature is elected)1. Structured properly, distributions from the Professional Security Plan are not subject to current taxation. What’s more, it also includes a non-taxable life insurance benefit. How does it work? The Professional Security Plan achieves its taxadvantaged status as a result of being powered by a variable universal life (VUL) insurance policy designed to provide high early cash value relative to the premiums paid, no surrender charges and an innovative loan feature.
Tax Restoration Concept What makes the PSP unique as a wealth accumulation strategy is the policy’s loan feature.This feature allows a participant to take a nonrecourse “tax restoration” policy loan to make up for the taxes paid on the amount of any after-tax deposit. Assume an executive wants to contribute $50,000 to the PSP. After paying all applicable taxes, there is approximately $30,000 left to invest, assuming a 40% tax rate. However, due to the “tax restoration loan feature,” the amount becomes $50,000 again. Investment Options The PSP has more than 60 investment options (subaccounts) from recognized fund managers such as Fidelity, Franklin Templeton, American Funds, and numerous others..
1. Optional feature. Contributions refer to premiums paid into a variable life insurance product.
Tax Restoration Feature (ALR)
*Assumed 40% tax rate. ** Loan and source of loan are optional. If chosen, policy loan is nonrecourse.
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PSP Participant Features Own amounts contributed with no annual limits1
Investment Options More than 60 investment options (subaccounts)
Contributions not subject to company creditors
Model portfolios available based on participant’s risk tolerance
No vesting requirements – 100% vested at issue
Recognized fund managers from top investment institutions such as Fidelity, Franklin Templeton, American Funds and numerous others
No age requirements or penalties on distributions Flexibility in timing and amount of distributions
Tax Efficiencies Similar to pre-tax savings with tax-deferred growth
Portability (may continue program after leaving company)
Non-taxable distributions
Secure access online to self-direct investment subaccounts in VUL Powered by a VUL insurance policy designed to provide high early cash value relative to the premiums paid, no surrender charges and an innovative loan feature 1. Annual contributions can be limited based on the insurance policy.
ADVANTAGES
DISADVANTAGES
No risk of forfeiture with respect to 457(f)
Requires different communication strategy
No exposure to claims of creditors as is the case with both 457(b) and 457(f)
Once funded the participant is vested and owns the benefit*
No restrictions with respect to contributions and withdrawals
Program has insurance cost**
Tax restoration feature option allows accumulation on pretax amount of deferral
Plan is a long term retirement savings and participant or organization must make at least five contributions
The life insurance benefit associated with the PSP Use of the PSP as a more effective alternative to an existing underperforming split dollar program Use of the PSP in conjunction with an Excess plan (cash payment tied to compensation in excess of the comp limit) *Plan could use claw backs. ** Must compare insurance cost with cost of taxes on funds owned outside product.
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Executive Split-Dollar Insurance Split-Dollar life insurance is a method of funding cash value life insurance policies. Both the employer and executive jointly buy a life insurance policy on the executive’s life. Accordingly, both agree to share in the cost and benefits of the insurance policy. How does it work? Once an organization and an executive enter into an agreement to purchase a permanent life insurance policy, the organization pays all of the premiums. The premiums are taxed as loans to the executive since he or she is the owner. The organization receives a
Organization
security interest in the policy for repayment of the premiums.The executive must pay tax on the interest on the premium loan each year at the applicable federal rate, as reported by the organization on the executive’s W-2 form. Not only is the split-dollar insurance a fringe benefit for executives, but it can be used in tandem with a 457(f) deferred compensation plan for: Estate planning Key employee replacement insurance Group term replacement coverage
Advantages of a Split-Dollar Agreement Executive
Can be offered selectively, making it an important tool in attracting, retaining and rewarding key employees A method to increase retirement income on tax-favored basis and to provide additional survivor benefits
Life insurance protection at a much lower cost than a full life insurance premium* A source of supplemental retirement income, a portion of which may be received tax-free Income may be derived from policy withdrawals, usually taken as loans
Simple and inexpensive to administer
No limits on contribution amounts
Employer receives back the total premiums paid on a tax-free basis and the cost of funds, if applicable
At retirement, not subject to risk of forfeiture or potential tax payments on the entire benefit
Employer’s interest is secured by the life insurance policy
Does not require mandatory distribution at age 70½ Beneficiaries receive the balance of the policy (face amount less death benefit paid back to employer and less any outstanding loans) on a tax-free basis
*If the objective is retirement, there may not be a cost/benefit due to the cost of insurance
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With salary and bonuses, retirement benefits, longterm incentives, health and welfare benefits, and other perks, you have many options and combinations to consider. Putting them together thoughtfully is well worth the time invested. A strong executive benefits package can do a lot more for a non-profit organization than simply reward excellence.
RCG|Benefits Group’s competitive advantage is not what we do, but how we do it. It’s a process that ensures better results for our clients. Unlike our competitors in the industry, RCG|Benefits Group looks at compensation and benefits as an integrated, cohesive whole.We then dig deep into the numbers as a basis for creating solutions to match an organization’s objectives and strategic direction.
A good program can help: Ensure management stability by providing the economic security for retirement, as well as the incentive to stay Enable mid-career recruiting by supplementing benefits lost in a move
We at RCG|Benefits Group are pragmatic and open-minded, which is why we find the solutions others overlook.
Provide milestone incentives to help the executives and the organization achieve set goals Equalize benefits in the event of executive transfers Restore base plan benefits with supplemental benefits not subject to the contribution limitations of a traditional pension plan Provide additional benefits Enhance early retirement
William L. MacDonald Chairman, President, & CEO RCG|Benefits Group
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About Us | Who We Are RCG|Benefits Group is a full service executive compensation and benefits consulting firm committed to helping organizations attract, retain, and reward their talented executives and professional staff. This is accomplished with a thorough assessment of an organization’s goals. RCG|Benefits Group’s recommendations are customized to meet each client’s needs; only then will an innovative and appropriate solution unfold that will meet expectations and deliver the intended results. RCG|Benefits Group has the experience and expertise to offer objective advice to leading organizations. Our executive compensation and benefit consultants assist in driving the various interests involved in the executive pay and benefits debate: employees, shareholders, institutions, and other stakeholders.
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Our services include: Compensation committee advisory Annual and long-term incentive plan design Compensation and benefits accounting, tax and regulatory assistance Form 990 disclosure assistance Executive deferred compensation and supplemental executive retirement plans (SERPs) Executive employment and severance arrangements RCG|Benefits Group is one of the nation’s premier, full-service executive compensation and benefits firms. We are a pioneer in the industry with more than 125 years of combined experience among its partners.
Our Consultants are: Experienced in executive compensation and benefit issues Licensed under strict industry guidelines Certified through an extensive process Backed by compliance and plan administration experts At RCG|Benefits Group,we have a four-step consulting process that helps control the experience of our clients and make their future more predictable:
In addition to our four step process, we also take into consideration other aspects that can make a difference: Study: Reviewing your succession planning, incentive design and leadership philosophy Consultation: Consulting with your organization’s attorney and other professional advisors Recommendation: Presenting a plan of action
1. Consulting: Plan design, benefit security, implementation/conversion strategy
Implementation: Helping you implement the program and coordinate it with your personal goals
2. Asset Management: Corporate liability funding and participant investment menu construction
Annual Review: Conducting a review each year to ensure the plan continues to meet the needs of your organization
3. Education & Communication: Enrollment, ongoing communication, and education. 4. Plan Administration: Proprietary web based platform, corporate reporting, asset/ liability management
During the process, we will also explain national and regional compensation and benefit trends and help you factor in one or more of the following areas of concern (as appropriate) into your executive benefits program: Retirement Planning
It’s not merely what we do that makes our process better, it’s how we do it that gets better results.
Estate Planning Incentive Compensation Planning Recruitment & Retention Strategies Tax-Deferral Strategies Investment Management
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RCG|Benefits Group Leadership RCG|Benefits Group is led by a team with a rich background in developing and implementing innovative compensation and benefits programs for public and private corporations. William L. MacDonald, a renowned expert in the executive compensation benefits industry, founded RCG in 2003 and has built a team of compensation and executive benefit specialists, focusing on consultative services for nonqualified executive benefit plans. Mr. MacDonald is joined by some of the leading experts in the field, leveraging decades of experience in the design, funding, and administration of executive compensation plans and other executive benefit arrangements.
Board of Directors RCG|Benefits Group’s Board of Directors is led by Dr. Arthur B. Laffer, the Founder and Chairman of Laffer Associates, an economic research and consulting firm that provides investment research services to institutional asset managers. Many may remember Dr. Laffer for his economic acumen and influence
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in triggering a worldwide tax-cutting movement in the 1980s, which earned him the distinction in many publications as “The Father of Supply-Side Economics.” Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989). He was a member of the Executive Committee of the Reagan/Bush Finance Committee in 1984 and was a founding member of the Reagan Executive Advisory Committee for the presidential race of 1980. Years of experience and success in advising on a governmental level have distinguished Dr. Laffer in the business community as well. He currently sits on the Board of Directors of several private and public companies.
Advisory Board Our Advisory Board includes current and past CEOs and Directors of Fortune 1000 companies across all industries as well as non-profit organizations, utilities, and professional service firms. These Advisory Board members provide a deep wealth of business and industry experience and are an invaluable resource to RCG|Benefits Group and our clients.
Contact Us For a courtesy consultation on how RCG|Benefit’s Group process can assist you in your retirement planning, contact a consultant in one of our regional offices:
HEADQUARTERS RCG|Benefits Group 12340 El Camino Real, Suite 400 San Diego, CA 92130 Phone: (858) 677-5900 Toll Free: (866) 724-4877 Fax: (858) 677-5915 E-mail: info@retirementcapital.com www.retirementcapital.com
RCG Boston 20 Park Plaza, Suite 1014 Boston, MA 02116
RCG Chicago 707 Skokie Blvd, Suite 250 Northbrook, IL 60062
Phone: (617) 904-9444 Fax: (617) 903-9927
Phone: (847) 849-1791
RCG Denver 888 South Williams Street Denver, CO 80209
RCG Milwaukee 12080 Corporate Parkway, Suite 140 Mequon, WI 53092
Phone: (303) 249-6639
Phone: (262) 478-2005 Fax: (262) 478-2006
RCG Southeast 11465 Johns Creek Parkway, Suite 330 Duluth, GA 30097
RCG Vinings 351 Atlanta Street Marietta, GA 30060
Phone: (770) 232-0303 Fax: (770) 232-0302
Phone: (770) 422-4800 Fax: (770) 422-4815
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RCG
BENEFITS GROUP
William L. MacDonald Chairman, President, & CEO RCG|Executive Compensation & Benefits Group 12340 El Camino Real, Suite 400 Phone. (858) 677-5900 Fax. (858) 677-5915 wmacdonald@retirementcapital.com California Insurance Lic #0556980
RCG|Benefits Group is a full service executive benefits firm that is committed to helping companies attract, retain, and appropriately compensate and reward their talented executives. RCG|Benefits Group is known for our diagnostic tools that enable us to thoroughly assess your existing plan(s) and make recommendations that meet your goals and objectives. Securities offered through Retirement Capital Group Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. Retirement Capital Group Securities, Inc. is a wholly-owned subsidiary of Retirement Capital Group, Inc. The information contained in this presentation should not be construed as tax, legal, or financial advice and should not be relied on as such. For advice concerning your own unique situation, please consult with your professional advisor. Variable Universal Life Insurance available by prospectus only. Not an offer to sell.