Broker Check

Pick Your Perks—Fringe Benefits That Work

| June 29, 2018
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Is your fringe benefits package offering the “perks” that really count with today’s executives and key employees? Without discussing the technical details of program implementation, or the legal and tax ramifications that need thorough consideration, here is an overview of a wide variety of available options: 

Salary Continuation Plans (Deferred Compensation)—Key employees may “earn” a percentage of their salaries after retirement, contingent upon performing services until retirement, as stated in a written employer-employee agreement. 

In-Service Deferred Compensation Payments—An option particularly attractive among younger executives, to receive payouts from deferred compensation plans for financial “hardships,” such as unexpected medical expenses or college tuition payments for children. 

Employee Stock Ownership Plans (ESOPs)—Defined contribution plans that invest primarily in a sponsoring company’s stock and give employees a stake in the success of the company. 

Cafeteria Plans—Flexible benefit programs structured to allow employees to select options in health, dental, and life insurance plans, retirement plan contributions, medical expense and dependent care spending accounts, or trade-offs of unused benefits for cash or time off. These plans are generally paid through flexible spending arrangements  of pre-tax-dollar employee contributions and employer spending credits priced to affect the attractiveness of each benefit option. 

401(h) Accounts—Method of pre-funding special retiree health care trusts contained in a pension plan, and which may be funded through corporate-owned life insurance (COLI) plans. 

“Double Bonus” Payments—Employer coverage of tax payments due on taxable fringe benefits and calculated by dividing the original fringe benefit dollar value by 1 minus the employee’s federal tax rate plus state tax rate, resulting in a figure that will include both the dollar value of the fringe benefit plus the total taxes due. 

Executive Bonus Plans—Personally-owned life insurance plans with premiums paid for by tax-deductible funds from the business and which provide “instant vesting” and 100% portability to the executive. 

Restrictive Bonus Plans—Executive bonus plans that include a special endorsement prohibiting employees from surrendering, loaning, or withdrawing life insurance cash values without employer consent. 

Death-Benefit-Only Plans—Method of providing highly compensated employees with considerable additional death benefits on an estate-tax-favored basis. 

Split-Dollar Insurance—A plan under which employees may purchase needed life insurance protection with “interest-free” loans from an employer. 

Age-Weighted Profit-Sharing Plans—Plans that allow discretionary employer contributions based on participants’ ages and salaries. 

401(k) Retirement Plans—Tax-qualified salary reduction profit-sharing plans that include a lump sum or tax-deferred payment arrangement. 

Fully-Insured Defined Benefit Pension Plans—Pension plans, funded by life insurance or annuity contracts, that guarantee payment of a defined benefit upon employee retirement. 

Simplified Employee Pension Plans (SEPs)—Portable pension plans similar to Individual Retirement Accounts (IRAs), but to which an employer may make discretionary contributions on behalf of employees. 

If it’s time to perk up your perks, consult your financial professional for the fringe benefits that will provide the most for you, your employees, and your business.

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