Non-Qualified Deferred Compensation (NQDC) Plans - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group

Nonqualified Deferred Compensation Plans A Tremendous Employer Benefit www.skloff.com

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. www.skloff.com

Skloff Financial Group and National Benefits Group Over 60 Years of Combined Experience: – Resolving owners’ and executives’ benefits and retirement needs – Correcting inefficiencies and shortfalls in current benefits programs – Creating management incentives for recruiting and retention of key employees – Providing wealth and investment management solutions www.skloff.com

Qualified Plans – Broad based benefits – Tax-Advantages – Strict IRS and ERISA requirements • Non-Discrimination • Limits on amounts or levels of benefits www.skloff.com

Nonqualified Plans – Limited IRS and ERISA requirements • Not subject to non-discrimination rules • No limits on amounts or levels of benefits • 409A – Address Specific Needs • Reverse discrimination • Retention • Business and estate planning • Personal savings www.skloff.com

Qualified Plans (e.g. - Pension, 401(k)) – Security – Broad Based Benefits – Tax-Advantages Nonqualified Plans – Benefits Parity – Retention – Performance www.skloff.com

Impact of $16,500 Contribution Limit in 401(k) Salary Max Pre-Tax Deferral Package $50,000 33.0% $100,000 16.5% $150,000 11.0% $200,000 8.3% $250,000 6.6% $300,000 5.5% www.skloff.com

Impact of $16,500 Contribution Limit in 401(k) 50,000 45,000 Limited in savings as % of 15% of Compensation 40,000 compensation - as little as 35,000 5.5% at $300,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Sample Census, Annual Compensation from $18,000 to $300,000 www.skloff.com

Nonqualified 401(k) Excess – Bypasses qualified plan limitations – Company can decide eligibility – Free of most IRS limitations – Pre-tax contributions – Tax-deferred growth until distribution or termination – Pre-59½ distributions without penalty – Employer Contributions, if any, can have vesting • Years of Service • Performance Goals or other criteria www.skloff.com

Phantom Stock – Specific deferred compensation plan – Alternative to equity based performance plans • Doesn’t dilute stock • Balance cash and equity payouts • Annual accounting mitigates large expense charges associated with equity plans – Offers private companies the ability to offer equity based compensation plans • No SEC registration • Compete against public companies www.skloff.com

Bonused Life Insurance – Current Compensation • Corporate Immediate Tax Deduction – Company Can Set Vesting – Employee Owned • No Risk of Forfeiture • Off of Corporate Books • Portable – Advantages Similar to Roth IRA • Tax Deferred Growth • Tax Free Benefits www.skloff.com

Advantages of Tax-Favored Retirement Plans The following example illustrates a 45 year-old who receives $100,000 per year for twenty years, to retirement age 65, and elects to withdraw retirement benefits starting at age 65 over a period of 15 years. Deferred Compensation Bonus Plans Personal Savings (Pre-Tax and (After-Tax and (After-Tax and Tax-Deferred) Tax-Free) Taxable) Annual After-Tax 269,136 269,136 167,364 Income x15 Years x15 Years x15 Years Total 15 Year After- 4,037,036 4,037,036 2,510,453 Tax Income * Assumed annual rate of return of 7.0% gross, 6.52% net of investment management fees. www.skloff.com

Nonqualified Plans at Work Problem - Retail Company with Contributions Limited – Low participation in 401(k) – Many highly compensated were receiving money back from their 401(k) contributions due to limits imposed by 401(k) testing – Company wanted to resolve the issue of retirement savings limits the management and officers had faced • Some employees were limited to annual pre-tax savings of only $2,500 • Company match was limited to $0 for many employees – Other qualified retirement plan alternatives were not appropriate as they had to include all employees • Not cost effective www.skloff.com

Nonqualified Plans at Work Resolution – Nonqualified 401(k) Excess Plan – Company set eligibility to include only employees who earn more than $100,000 per year – Eligible employees are able to make pre-tax contributions • Some employees participate up to 100% of compensation, deferring all income taxes for the year – Company is able to offer its corporate match in the nonqualified plan – Plan allows pre-59½ distributions, without penalty • Tuition and education expenses • Early retirement www.skloff.com

Aaron Skloff, AIF, CFA, MBA CEO – Skloff Financial Group Phone: 908.464.3060 www.skloff.com

Non-Qualified Deferred Compensation (NQDC) Plans - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group

by Aaron Skloff, AIF, CFA, MBA on Apr 02, 2009

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Non-Qualified Deferred Compensation (NQDC) Plans - Aaron Skloff, AIF, CFA, MBA - CEO Skloff Financial Group — Presentation Transcript

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