Institutional Markets: Executive Annuities
Executive Annuities are annuities specially targeted to companies providing executive benefit plans such as SERPs (Supplemental Executive Retirement Plans) and NQDCs (Nonqualified Deferred Compensation plans). Nonqualified benefits are vital components of most executives' compensation packages, often dwarfing their qualified benefits.
By their very nature, nonqualified plans are unsecured. Even for those with more modest amounts exposed, retirement plans can be upset even at those companies that fund their nonqualified plans with commonly used trust arrangements. Executive Annuities can increase the participant's security and improve the payout in other ways.
Potential Advantages to Executives:
- Enhanced tax treatment
- "Securitization" of their benefit
- Flexibility and control over their funds
- Income for the employee's lifetime
- Enhanced creditor and probate treatment possible
Similarly effective for plan sponsors, executive annuities can provide wins for all involved. Most plans can use a fresh look.
Plan Sponsors
Executive Annuities can produce positive effects over the long and short term and enhance the ability of the non-qualified program to retain, reward, and motivate participants. Advantages to plan sponsors include:
- Improved plans with concomitant increases in the ability to retain and motivate top talent
- Reduced liabilities
- Cost savings and EPS improvement
- Reduction in the costs and hassles of administration
Most companies of significant size (public and private) offer non-qualified plans to top executives in order to provide competitive compensation packages.
Companies need to provide nonqualified plans to reward, motivate and retain their top executives. They also need to consider benefits for other levels of management.
Participants
- Approaching Retirement – Nonqualified plans are available from virtually all firms competing for executive talent. Retention and motivation can be enhanced by maximizing their value without increasing costs; liabilities can be eliminated.
- Retiring – On their way out, benefits should generally be paid off and/or made portable. Expenses, liabilities and administration can all be eliminated prospectively while enhancing the participant's situation.
- Retired – If there are any of these participants still receiving nonqualified benefit payments from the company there needs to be an overarching reason why. Benefit enhancements with cost/liability reductions are waiting.
Capitas institutional Markets can review the nonqualified plans at a company and show how they can be improved. Our goal in working with plan sponsors is to help them identify ways to improve/optimize their nonqualified benefits. Our work is directed at the delivery of nonqualified benefits, not their levels.
A better utilization of the existing programs and funds can improve their ability to retain, motivate, and offer a competitive advantage in attracting new talent. Working with the company's team we examine the nonqualified plan(s), make recommendations and help implement those recommendations, if desired.