Gary W. Pelletier, CLU, ChFC, AIF®

Northeast Planning Associates, Inc.

Corporate, Estate

& Financial Planning


Focus on Your Employees

| September 04, 2015
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As a New Englander, we live in the backyard of America’s best colleges, where there is a rich and deep talent pool. However, those bright minds are highly sought after, which is why it is important to offer a compelling corporate package. 

A cushy chair and a corner office are nice, but many employees are looking for more. According to the Boston Globe, they want a corporate culture, flexible hours, and good compensation. Successful businesses need talented employees to keep daily operations running smoothly. In this post, we will explore retirement plan options that might 1. Attract, 2. Keep, and 3. Motivate top talent for your company. Not all suggestions are equally appropriate, and it is best to speak with a financial professional, tax accountant, and/or third party administrator to determine what is best for your company; but for now, let’s have an open discussion about possibilities so you can make informed decisions.

401(k)

A 401(k) is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are deducted. Taxes aren't paid until the money is withdrawn from the account. This option is good starter benefit that offers business owner flexibility and employees the opportunity to save for retirement. For 2015, the maximum employer and employee contribution is $53,000.

For more information: http://www.dol.gov/ebsa/publications/401kplans.html

Cash Balance

A cash balance plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance. For 2015, the maximum employer and employee contribution, including the 401(k) plan, profit sharing match, catch-Up contribution, and cash balance funding amount is approximately $296,000.

For more information: http://cashbalancedesign.com/cbc/documents/ContributionLimitsTable.pdf and http://www.dol.gov/ebsa/faqs/faq_consumer_cashbalanceplans.html

Section 79

Internal Revenue Code, section 79, allows a business to provide group insurance for employees and take an income tax deduction for premiums paid while also having employees receive favorable taxation for the first $50,000 of group life insurance coverage. The business pays income tax- deductible contributions to the designated insurance company. The employee is taxed on the permanent portion of the total coverage less any employee contributions. Death benefits are paid to the employee's beneficiary on an income tax-free basis. Section 79 plans can be complex making it important to consult with an insurance professional.

For more information: http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/Group-Term-Life-Insurance 

Supplemental Executive Retirement Plans (SERPS)

SERPs generally are structured to mirror defined-benefit pension plans. They promise a stated benefit offered by the employer for the employee’s retirement. SERP benefits, which can be allocated in conjunction with other benefit plans like qualified-plan savings and Social Security, may be calculated in any number of ways. Employers may choose to pay their executives a flat dollar amount for an agreed-upon number of years, a percentage of their salary at retirement multiplied by their years with the company, or a fixed percentage of their salary at retirement for a given number of years. Companies also have the option of funding SERPs either through general assets (at the time of the employee's retirement) or via sinking funds or corporate-owned life insurance (COLI). (Source: Inc.com http://www.inc.com/encyclopedia/nonqualified-deferred-compensation-plans.html)

Corporate-Owned Life Insurance (COLI)

Under the COLI funding method, businesses buy life insurance plans on those directors and executives who they wish to compensate. Each company pays the premiums on the purchased policies; and as each executive retires, the firm pays out his or her benefits from operating assets for a previously established period of time. The key benefit for the small business owner under the COLI arrangement is that his or her business is designated as the sole beneficiary of the tax-free proceeds from the insurance policy. Upon the death of an executive, for whom such a policy has been acquired, the company is reimbursed for some or all of the costs of the insurance plan—the actual benefits paid and the insurance premiums. Entrepreneurs should note, however, that their firm will not receive a tax deduction for its contributions to a SERP until the director or executive actually receives the benefit payments. (Businesses using qualified compensation plans, on the other hand, receive deductions in the current year.) (Source Inc.com http://www.inc.com/encyclopedia/nonqualified-deferred-compensation-plans.html)

These are just a few of the plan types that are available and again, it’s best to speak with financial professional, tax accountant, and/or third party administrator to determine which is best for your company. To attract, keep, and motivate employees, enacting at least one of these plans will be worthwhile. Contact us today, to set up a meeting.

Additional Sources

http://www.boston.com/business/blogs/global-business-hub/2014/02/millennial_ceo.html

http://www.businessknowhow.com/manage/attractworkforce.htm

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