Executive Annuities

Non-qualified executive benefits are a mixed bag for executives and plan sponsors alike.

The good news is that executives have sizable benefits due them during retirement. The bad news is they have to depend upon their company to provide those benefits over ten year, fifteen year, even life-long durations. Unfortunately, these are unsecured benefits to insecure participants, even with the best of rabbi trust and informally funded plan structures.

The corporation’s picture is similarly imperfect. Large liabilities and ongoing cash flow commitments to executives that have long since retired means added reporting, accounting, and financing far into the future.

Executive Annuities can alleviate these problems.

With an executive annuity the participant is provided an institutionally priced annuity in lieu of ongoing payments from the corporation. In other situations the company can take ownership of the annuities. These are group annuities and are available only through an employer/employee relationship.

Either way, the annuities will result in an enhanced situation to the executive, with an increased certainty of receiving their benefits. And for the plan sponsor, the financial impact of the Executive Annuity option can be compelling.

Plan Sponsors

• Sponsors can reduce corporate liabilities and costs
• Security of the benefits is increased with a commensurate increase in the plan's ability to reward, motivate and retain executives
• The hassles and costs of maintaining and administering a nonqualified plan are reduced or even eliminated
• Funds already earmarked or placed in trusts for the executive’s benefits can be used for annuity deposits if desired
• Investment and mortality risks are transferred to insurers
• The sponsor can also generate significant returns from the program

Executives

Executive Annuities can alleviate the executive's issues while enhancing the plan sponsor’s position.

It is not unusual for top executives to have benefit promises from their non-qualified plans that dwarf their traditional pension and 401k plan benefits. These assets are at risk if the plan sponsor runs into financial trouble. Even for those with more modest amounts exposed, retirement plans can be upset even at those companies that fund their non-q plans with commonly used trust arrangements.

Advantages to Executives:

• Securitization of their benefit
• Enhanced tax treatment
• Potential flexibility and control over their funds
• Annuity can provide income for the employee’s lifetime
• Enhanced creditor and probate treatment
• Funds are guaranteed by the annuity provider
• Tax deferral

Deferral Plan Alternatives

Non-Qualified Deferred Compensation (NQDC) plans are offered by most significant public and private companies. Today these plans are tarnished due to: market volatility, 409A, plan sponsor risk, complexity and an increasing tax environment. As a result, many executives are not deferring and their account balances are down. Executive Annuities can alleviate these issues in two ways:

1. By rolling deferred amounts into annuities more after-tax retirement income (at lower risk) can be generated AND plan sponsor costs/liabilities eliminated
2. Companies (at no cost) can provide participants with an option at deferral election to move a portion of new money deposits (after-tax) into an Executive Annuity. Safe, secure, tax advantaged and guaranteed.