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Nonqualified Deferred Compensation Plans - NACD BoardVision - YouTube
Channel: NACD Online
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welcome to nacd boardvision where
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leading boardroom advisors governance
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professionals and seasoned directors
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discuss critical issues related to your
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responsibilities in the boardroom
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hi I'm Steve Kalan with NACD and today
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on board vision will be talking about
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non-qualified deferred compensation
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plans executive benefit plans can and
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should be used to help manage human
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capital risks facing companies today the
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very personal and private nature of
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compensation packages can create a
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powerful link between executives and the
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board enhancing loyalty and diminishing
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costly turnover in fact ninety percent
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of the Fortune 1000 companies have some
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variation of a non-qualified deferred
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comp plan so we'll discuss this specific
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benefit today we're glad to have back
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with us Jason maples leader of the
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executive benefits practice at lockton a
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firm specializing in risk management and
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executive benefit plans Jason these
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non-qualified deferred compensation
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plans allow executives to legally defer
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income on a pre-tax basis to a future
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date can you give us a broader
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definition of these plans thank you
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Steve non-qualified deferred
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compensation plans allow the executive
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to control the timing and Taxation of
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their income died by deferring income to
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a future date and time in addition
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companies have the ability to make
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contributions to these plans as well so
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these plans are typically designed with
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three components the first is an
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elective deferral component that allows
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the executives to defer as much as a
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hundred percent of their income and
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defer that to a future point in time
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second companies can use these plans to
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restore any lost matching contributions
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due to either discrimination testing in
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the 401k or because of the covered
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compensation limits and finally the
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companies can use these plans on a
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discretionary basis to make a deferral
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for somebody or a contribution for
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somebody in any amount at any time with
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any vesting schedule so they can use
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these plans to help recruit and retain
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key town do most of these plans have one
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two or all three of these elements and
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what are the main drivers in the create
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these plants great question Steve most
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of these plans include all three
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elements the first is that elective
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deferral provision and what's special
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about these plans of these plans can be
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used for planning financial planning
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objectives other than retirement for
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example college education or down
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payment on a second home second is that
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restorative contribution to make up any
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lost contributions in the 401 k plan
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above the covered compliments and then
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that third piece is that discretionary
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piece that gives the board the ability
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to make additional contributions if
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needed Jason given the current tax
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situation where we can expect increases
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across the board for executives how will
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this affect the design and solutions in
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these plans I think you'll definitely
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see an increase in the amount of
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elective deferral plans taking place
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because of the new Medicare investment
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excise tax and because of the probable
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expiration of the Bush tax cuts second
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that restorative piece is going to
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continue to be important because it's a
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it's it's critical for the company's to
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have a vehicle to make up those lost
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matching contributions and then the
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third piece is that discretionary piece
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which gives the company added
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flexibility from a compensation
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perspective to make contributions for
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executives and discriminate who those
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contributions are for based upon the
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needs of the organization Jason this has
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been very helpful and should give our
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directors of feel for the type of
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oversight they can use on this matter
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directors should understand if their
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company has this program and if it's in
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place in the C suite and below as
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mission-critical personnel can be found
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in many areas outside the executive
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suite directors may even ask how many
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have these types of benefits and where
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they're concentrated to get a feel for
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the parts of the company most at risk to
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the loss of key people if companies
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aren't using executive benefits like
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non-qualified deferred comp plans to
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keep their talent they should expect
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their competitors may be using this very
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tool against
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them thanks again for your expertise
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today Jason I'm Steve Kalan and this is
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boardvision
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you
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