Non Qualified Retirement Plans

For many if not most executives and business owners, their primary financial concern is how best to fund their retirement. Obviously, planners usually recommend their clients fully fund any qualified retirement plans for which they are eligible. However, even the most disciplined executives, those who fund their qualified plans (401K, 403b, etc) at the maximum permissible levels, often find they simply cannot deposit enough in these plans to secure their retirement income needs.

Of course, it makes sense to invest with post tax dollars as a retirement supplement, but highly compensated executives often find themselves with combined federal, state and local income tax rates above 40%, add the employee share of payroll taxes, and in order to invest $1, they first must earn nearly $2.

This is where non qualified plans come into play. There are quite literally dozens of strategies which can be implemented to assist highly compensated employees secure their future retirement. These plans can be funded through salary reduction - with funding coming from the executive, salary continuation plans - funded by employer contributions, or combinations of employee and employer funding. It is important to note that while employees will not be currently taxed on deposits made on their behalf, the contributions are generally not deductible to the employer until retirement payouts begin.

There are no statutory funding limits for any of these plans, but they are subject to “reasonable compensation limits”. While reporting for these plans are minimal (No 5500 filings, no “top-heavy” calculations, minimal administration), it is important to understand there are regulatory compliance requirements under IRC Sect. 409a and particularly in the case of tax-exempt employers IRC Sect. 457, so it is important to work with a team of professionals experienced in design and compliance when implementing any non qualified plan. Our insurance team at FS Group averages more than 25 years of experience in executive benefits planning and strategies.