ATTRACT, RETAIN, REWARD : simplebooklet.com

OLD ISSUENEW SOLUTIONa fresh lookSome things remain constant over time. Businessowners and CEOs have always wrestled with the dualproblem of attracting and retaining key employees.The simple and immediate solution is to just throwmore and more money at the problem. However,higher salaries and bonuses are easily matched bycompetitors, and they don’t provide an incentive foremployees to stay. You CAN BE SELECTIVE with Executive Benefits

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Sense of ownershipshould not be an outcomeof one’s title, stockownership or salary, butreadiness to take work,passion & accountability. Sandeep Aggarwal EntrepreneurEXECUTIVE CARVE-OUTSThe common denominator amongcarve-outs is they are not availableto all employees. While we often thinkof them as providing benefits for thevery highly compensated, they arealso popular among business ownersand Not-For-Profit organizations. Thesalary scales at NFPs are usually lowerthan at other business entities, sothese plans help attract talentedexecutives who might otherwisemight find employment elsewhere. Executive Carve-Outs aresometimes referred to as GoldenHandcuffs or Golden Parachutes.While they are not subject to ERISArules, there are other regulations tobe followed and tax consequencesneed to be considered. A qualifiedtax advisor should be consultedbefore implementing any plan.Executive Carve-Outs primarilyprovide a future benefit. The exceptionis individual Disability IncomeInsurance. Employees may like cash benefits withno provisos. However, they don'tusually provide a valuable futurebenefit. The graphic on page 8 compares acash bonus versus a premium bonus.The comparison is not truly realistic.Cash bonuses tend NOT to be investedfor the long term. They are usuallyspent.

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Employers have tounderstand that if theywant to attract and keepgood people, they’ve gotto treat those people aswhole people who havelives outside of work. Robert Reich, Former Secretary of Labor In smaller companies, ESOPs orstock options may not be feasible.Group benefits must comply withERISA regulations. Some executivebenefits like employee-ownedDisability Income Insurance end atretirement while others aredesigned to provide a post-retirement benefitEASE OFADMINISTRATIONDeciding upon a method to keepvaluable employees and attract newtalent depends on multiple factors:existing compensation plans,identifying key players, the goals ofthe company and certainly, theavailable dollars to fund any suchplan,Smaller or closely heldcorporations might have verydifferent compensation structuresfrom large companies, but theissue remainsthe same.......how to keep or attracttalent from leaving or worse yet, ...... going to acompetitor.

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The employergenerally gets theemployees he deserves.J. Paul GettyIndustrialist CORPORATEDOLLARS -PRIVATE BENEFITIn these plans, insurance policies are owned by the executives and are paidfor through cash bonuses to the executives. Section 162 Plans are also a wayin which business owners can use corporate dollars for private benefitsThese plans are not complicated nor are they expensive to administer. Unlikesome other benefits, no TPA (third party administrator) is required to doannual testing or record keeping. The employer can implement this type ofplan for, one key-employee or many. This is a non-ERISA benefit and thereforecan be discriminatory. One of the most effective options forbusiness owners and CEOs toconsider is a Section 162 ExecutiveBonus Plan. A Section 162 plan allowsa business to provide valuable futurebenefits to business owners and keyexecutives using tax-deductibledollars.

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"I cannot give you theformula for success,but I can give you theformula for failure--Itis: Try to pleaseeverybody."Herbert Bayard Swope AuthorDISCRIMINATE:Specify who is tobe rewardedThe rules are simple. The employeemust be in the top 15% with regardto compensation. A business ownercan choose to include just himselfor herself.Can discriminate as to whichemployees are to be rewardedPremiums are tax-deductible. Easy to administerDiscourages an employee fromleaving because upon separationfrom the company, the premiumsbecome the responsibility of theemployee.A Restrictive Endorsement BonusArrangement (REBA) can beattached that creates a vestingschedule and prevents theemployee from with-drawingmoney from the policy. Plan is portable for executive,although employee will have topick up premiums if he leaves Company is funding personalinsurance that will benefitemployee or family Provides a post retirementbenefit May be vested immediately ADVANTAGES TO EMPLOYER ADVANTAGES TO EMPLOYEE

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FUNDED WITHINSURANCE: Life,Disability Incomeor Long-Term CareIf you take care of youremployees, they will takecare of your customersand your business willtake care of itself. J.W. MarriottHotelierTraditionally, these plans are fundedwith Life Insurance or DisabilityIncome Insurance. As awareness ofthe potential need for chronic healthcare grows, Long-Term CareInsurance (LTCI) has become anincreasingly valued perk.The affluent are interested inprotecting their assets, asevidenced by their willingness topay attorneys to create costlyestate plans with strategies thatmay include a variety of trusts.Trusts however do not protectretirement assets. A tax-qualifiedretirement plan may be among aperson’s largest assets but theleast likely to be protected.While most are familiar with theimportance of Life and DisabilityInsurances, many mistakenly think ofLTC Insurance in limited terms, i.e.as a way to keep people off Medicaid.The fact is, LTC Insurance protectsretirement assets against thelikelihood of using those assets forchronic health care instead of whatthey had been designated for.

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Train people wellenough they can leave.Treat them wellenough so they don’twant to!Richard Branson EntrepreneurPOST RETIREMENTBENEFITWe have chosen to use LTC Insurance(LTCI) to illustrate how Section 162plans work because LTCI is a valuablebenefit often ignored as a componentof a comprehensive compensationpackage.Click for a more detailed comparison of cash bonus vs premium bonusCASHPREMIUM

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When employers nolonger offer secure full-time employment withbenefits, then it’s hard toexpect employees to beloyal, engaged andmaximally productive. Stewart D. FriedmanOrganizational PsychologistEMPLOYERS &EMPLOYEES BENEFITArrangement) that creates a vesting schedule & can minimize the employer’spotential risk by ensuring the retention of the valuable employee. Cashbonuses offer no claw back provision and provide no retention feature. Employees might not warm to the idea that premium bonuses are consideredincome and therefore taxable. To overcome this objection, some employerschoose to double bonus, i.e. paying tax for the employee. Instead of providing a cash bonus, aSection 162 Plan provides an insurancebenefit, Disability Income Insurance, LifeInsurance or Long Term Care Insurance.Life and LTC Insurance are valuabledeferred benefits that the executivewould otherwise have to pay for fromhis/her own pocket. Because of its tax advantagedproperties, insurance is the perfectvehicle to deliver this deferred benefit.Under ordinary circumstances, neitherdeath benefits nor long-term carebenefits are taxable.*Retirement assets represent a major portion of most people's net worth. Yet, itis the only asset that is not protected. LTCI benefits, are predictable andguaranteed. The benefits are tax-free and depending upon the specific policythere will be a life insurance benefit or a return of premium to beneficiaries ifthe long-term Care benefits are never accessed. When considering a Section 162 plan,the employer may object to the factthat he has no control over policyvalues since it is owned by theemployee. This concern can beaddressed by adding a REBA(Restrictive Endorsement Bonus(*If the policy is a MEC (Modified Endowment Contract), withdrawals and loans may be taxable upon receipt. If money iswithdrawn before age 59 ½, additional federal tax may apply)

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It’s easy to solve aproblem that every onesees, but it’s hard tosolve a problem thatalmost no one sees. Tony Fadell EntrepreneurWHYLONG-TERM CARE?services and above average costs. Additionally, quoted costs only includeroom and board and hourly costs of home health care aides. Thechronically ill and frail often have to rely on family or paid serviceproviders for many tasks that they had previously handled themselves,from bill paying to walking the dog. A need for chronic care, aka Long-Term Care is the biggest threat tothe future lifestyles and financialstability of older Americans. Whilecost-of-care surveys and mapspredict the cost in terms ofaverages, affluent individuals areused to aboveIf given a choice, most do not want to move from their home to a carefacility, be it assisted living or a nursing home. Aging at home is preferableand is actually the most expensive option. Consider that care provided athome care is a one-on-one expense. The cost is not spread among staffmembers as is the case at care facilities.While the affluent may be able to pay these costs, why would they want to?Tax ramifications of using tax-qualified funds or the cost of liquidating hardassets needs to be considered when choosing to self-insure.CLICK MAP TO VIEW AVERAGE COSTS OF CARECURRENT & PROJECTED

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