A new year offers new opportunities, and new concerns, for a key employee in a business.
Will I succeed with my work goals? Should I look elsewhere for a challenge … and the pay that comes with that challenge? I’m a year closer to retirement; am I on track financially? What about my family and their needs if something happens to me? How will this uncertain economy, and the threat of increased taxes, affect my plans? Can my company help me out with some or all of these concerns?
Employers who want to recruit, retain and reward key employees need to anticipate the concerns of their top people. They need to look beyond pay to benefits and incentives. And they need help from financial advisors who can assist them in identifying best practices, key issues and affordable solutions. 2012 is a pivotal year for key employee benefits planning. We are faced with an uncertain economy, a volatile stock market and an unknown future for taxes. This environment speaks volumes about the opportunity for creative executive benefits planning.
The challenge is to get employers’ attention so these opportunities can be explored. When the concerns are making payroll, sorting through cumbersome regulations and dealing with escalating health care costs, it is easy for key employee benefits to get lost in the shuffle. Try using these five top topics to open the door to executive benefit sales, getting the issue back on the employer’s list of priorities.
1. Retirement help
There is a discrepancy between the high percentage of highly compensated employees, or key employees, wanting help and the low percentage of employers offering such help. In a recent survey of the Principal Financial Well-Being Index, more than three-quarters of key employees said they were interested in a tax-advantaged plan to help them save more for retirement, beyond the qualified retirement limits. Yet, not enough small- and medium-sized business owners offer such plans.
These plans could take the form of employee resource benefit planning — helping the employee understand the benefits the employer offers, and then explaining voluntary workplace benefits the employee can participate in. Or specialized benefit programs, like a nonqualified deferred compensation program, could be created exclusively for key employees. If an employer can help a key employee supplement his or her retirement income, loyalty and motivation are quick to follow. In addition to salary, bonuses and qualified plans, voluntary benefits and a nonqualified plan can provide the extra incentive a key employee needs to stay loyal.
How to bring it up with an employer: “Recent research suggests that, in addition to providing monetary benefits for key employees, helping them save money for retirement on a tax-efficient basis helps with retention. Would you be interested in hearing about tax-efficient ways you can help your key employees save for retirement?”
2. Taxation concerns
The tax environment, particularly for key employees, is proving volatile and unpredictable. Employees are concerned with their current level of taxes, plus they fear the future will only present higher taxes. Table 1 shows the top marginal income tax brackets (including Medicare taxes) that are scheduled to occur in 2013. Unless proactively addressed by Congress in 2012, an election year, taxes on key employees stand to rise precipitously in 2013. If an employer offers key employees benefits that defer, reduce or allay taxes, they have employees who can focus on their work, knowing their employer is helping them. Executive bonus, individual disability income and deferred compensation offer work-based tax incentives for key employees.
How to bring it up with an employer: “In an economic environment where there is upward pressure on income taxes, this may be a serious concern for your highly compensated employees. In a recent research study of key employees of small- and medium-sized businesses, more than three-quarters of the key employees indicated they are interested in a tax-advantaged plan to help them save more for retirement beyond the qualified retirement limits. Would you be interested in hearing about such plans?”
3. Financial gaps
Key employees face gaps in their retirement planning. First, they have a retirement income gap because Social Security and their qualified plan are likely to represent only a small percentage of their retirement income goal. For many, the retirement shortfall is compounded by a market gap. Much of the key employee’s retirement capital may have been exposed to declines in equities over the past several years, leaving the employee with several years of lost asset accumulation. Further, many of them may question if there is much opportunity to quickly recoup their losses. Employers can’t restore lost wealth, but they can offer benefits that allow their employees to do so.
How to bring it up with an employer: “In a 2011 research study of key employees at small- and medium-sized businesses, key employees had a pessimistic view of the U.S. economy for the remainder of the year. Almost three-quarters expressed a belief that the 2012 economy would remain the same or worsen. Further, nearly seven in 10 key employees report that they are limited in what they can contribute to a defined contribution retirement plan. Would you be interested in hearing ideas for how you can help these key employees save more toward their retirement?”
4. Income tax savings
If Americans have learned anything from the recent recession, it is that they likely need to save more for retirement. Key employees appear even more aware of this need, especially because of the current tax environment. However, employers may not be aware that they can offer tax-advantaged ways for key employees to save for retirement. Some employers may have heard of deferred compensation plans, but they wonder if, in a potentially rising income tax environment, such plans will help. Recent research suggests that, with few exceptions, deferring compensation is likely to help key employees save more toward retirement.
How to bring it up with an employer: “You may have heard of nonqualified deferred compensation plans for key employees, but you may not be aware that even in a potentially rising income tax environment, these plans can help your key employees build more income for their retirement. Would you be interested in hearing about special plans that you can implement that will help your key employers save on a tax-favored basis for retirement?”
5. Financial advice
Many may assume that key employees have financial advisors and receive sophisticated planning advice. According to the Principal Financial Well-Being Index, only one-third of key employees currently have an advisor and either manage or plan to manage their retirement money using guidance from this advisor. Many employers can recognize time is a precious commodity for these key employees. To the extent an employer can help its key employees obtain financial advice, the employer is likely to have a more productive and satisfied executive cadre.
How to bring it up with an employer: “Recent research suggests only about one-third of key employees have a financial advisor. Would you agree that if you can help your key employees obtain helpful financial advice, they’ll be more productive and more appreciative of the support they receive from your company? Would you be interested in ideas for how to provide such support?”
Steve Parrish, J.D.*, CLU, ChFC, RHU, is a national advanced solutions consultant with the Principal Financial Group, Des Moines, Iowa.
*J.D. is an educational degree and the holder does not provide legal services on behalf of the companies of the Principal Financial Group.
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that the author is not rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.