Quiz 14: Executive Retirement Arrangements
Executive retirement arrangement Executive retirement arrangement plan is used by employer who discriminates in favour of specific group of executive employees. The contribution limit on qualified plan has resulted in increase in demand of executive retirement arrangement plan for both employer and employee. The executive retirement arrangement plans are implemented based on company's objective for the plan which could include avoiding mid-career changes by executive, recognizing incentive pay or executive transfer. The condition by which these plans would be set-up could be to retain top talent of company and setting vesting period for these employees so that company does not suffer if they leave the organization.
Executive requirement plan referred to as pension plans apart from the one established and governed by ERISA which provides retirement income to an employee after permanent termination of employment. The executive retirement plan is of two types- 1. Excess benefit plans 2. Top hat plans Objectives behind establishing of Executive Retirement Arrangements by employers are- 1. Restoring of base plan benefits The objective is to restore the plan benefit that has been lost because of many reasons present such as tax considerations. 2. Providing more benefits It also has the major objective to provide higher benefit compared to the one received from company's based plan 3. Midcareer recruiting The loss of plan benefit that occurs to a participant in case of leaving the job in the middle of year can be reduced by employer by establishing of a supplementary retirement plan that would provide additional benefit to the employee. 4. Recognizing Incentive Pay To recognize the total incentive given to an employee and provide a benefit to the employee on the basis of same so that extra benefit is made available by the employer during recruitment. 5. Executive transfer A single plan can be framed by an employer in case benefit within an organisation differs for different form of industry so that in case of transfer of a participant within the organisation would not affect the benefits available to them. These are the typical objectives of employers in establishing an executive retirement arrangement however various other objectives also affects the decision such as Deferred compensation given to participants, uniform treatment, non competitive provisions etc.
Executive retirement arrangement Executive retirement arrangement plan is used by employer who discriminates in favour of specific group of executive employees. The contribution limit on qualified plan has resulted in increase in demand of executive retirement arrangement plan for both employer and employee. Qualified retirement plan Qualified retirement plan are plans which would meet the requirements of IRS and would therefore offer tax benefit to investor. Qualified retirement plan includes 401(k), 403 (b) and profit sharing plans. The differences in design plan of executive retirement arrangement and qualified retirement plan are described below: Executive retirement arrangement plans are generally for top management of the company while qualified retirement plans are for all employees of the company. The plan design for executive retirement arrangement plan would depend on the objective of employer to set-up the plan while the design plan for all qualified retirement plan would be same. The employer would set forth its own condition and vesting period for executive retirement plan while for qualified retirement plan the plan design would be similar to set by law. The similarities in design plan of executive retirement arrangement and qualified retirement plan are described below: The design plans for both the arrangement are prepared for employees and the contribution to the plan would be based on benefit formula which would either depend on prior employer or generous accrual rate for first few years.