7/17/20 The B Busine ness M Market i in t n the "ne "new no normal" w " with M Matt S Schiff Matthew E. “Matt” Schiff, CLU, ChFC, WMCP President Schiff Benefits Group, LLC 220 Gibraltar Rd, Suite 350 Horsham, PA 19044 610-292-9330 www.SchiffBenefits.com MSchiff@SchiffBenefits.com 1 Topics f for T Today’s D Discussion • The “n “new N Normal” • How d does a an e employer p provide b benefits k knowing c cash f flow i is r reduced? • What i is t the g goal? H How s should i it b be s structured – if a any? • Eliminate? R Reduce? R Redirect? • Flat a amount o or p percentage o of s salary? • Flexible o or s set b based u upon p profitability? • All e employees o or j just a a f few? • When i is i it p paid? R Retirement o or “i “in s service” : ” : • In S Service B Benefit • Wh When en? • Lump o or e equal p payments Retirement B Benefits • • Time a and f form ( (409A r rules)? • Employee o or e employer s supplemental p payments a as w well? 2 1
7/17/20 Don’t g get c caught b by s surprise! e! For Agent Use Only 3 Our S Story For Agent Use Only 4 2
7/17/20 Schiff B Benefits G Group, L LLC - Se Services § Help E Establish C Client O Objectives § De Desig sign § Im Implem emen entat ation (enrollment a and u underwriting) § Administrative S Support For Agent Use Only 5 Schiff B Benefits G Grou oup – Pr Profes essio ional al Expertise Exp ise Ac Accounting § Ac Actuarial § Ad Administration § Compensation & & B Benefits § Investment & & I Insurance § Legal ( (outsourced) § Sys ystems ( (TPAs) § Tax ( (outsourced) § For Agent Use Only 6 3
7/17/20 Schiff B Benefits G Group, L LLC Repre resentative C Clients For Agent Use Only 7 Execu Ex cutiv tive Ben Benef efit t Pr Progr grams ams For Agent Use Only 8 4
7/17/20 Potential E Executive B Benefit P Programs Deferred Compensation Supplemental Life Supplemental Insurance Retirement Income Executive Ex Long-Term Disability Long-Term Care Income Insurance Survivor Income Benefit For Agent Use Only 9 Target M Markets Executive Benefits Marketing Services Large Industrial Corporations Banks (Revenues > $250 million) Target Market =15,000 Corporations Target Market = 7,100 Banks VERY COMPETITIVE MARKET VERY COMPETITIVE MARKET Mid-Size Businesses Healthcare Institutions (Revenues < $350 million) (Not-For-Profit) (Minimum 5 Executives) Target Market = 4,000 Hosptials Target Market = > 250,000+ and Medical Groups Business Entities VERY COMPETITIVE MARKET LIMITED QUALITY COMPETITION For Agent Use Only 10 5
7/17/20 Executive Benefit Plan Comparison http://schiffbenefits.com/wp- content/uploads/2017/01/SBG-Executive- Benefits-Grid.pdf No Non-Qua Qualified No Non-Qualified S Supplemental Executive B Bonus P Plan ( (EBP) Deferred C Compensation P Plan Executive R Retirement P Plan ( (SERP) (DCP) (D • The company pays the annual premium on a life • Tax-advantaged savings opportunity for the key • The company agrees to provide supplemental insurance policy owned by the key employee employee retirement income benefits for the key employee • The amount of the premiums are treated as Key employee elects to defer current income Can be structured as a “defined o o employee bonus compensation on a pre-tax basis Benefit” or a “defined contribution” plan General O Overview Earnings accrue on a tax deferred basis o • The company can elect to provide a percentage match or additional contribution • • • Employers with 10+ employees Employers with 45+ employees Employers with 45+ employees • • • C Corporations C Corporations (owners and key employees) C Corporations (owners and key employees) • • • Mid to Large S Corporations (for employees; not Mid to large S Corporations (for employees; not Mid to large S Corporations (for employees; not Target E Employer owners) owners) owners) • • • Attractive executive benefit plan alternative for pass Employers with good succession planning in place Employers with good succession planning in place through entities • • • Employees who would appreciate permanent life Employees who want to make pre-tax salary deferral Employees who will experience a retirement insurance coverage; and the tax-deferred cash value contributions income shortfall from qualified plans due to IRS Target E Employees build-up in the policy, caps • Employees that may be more sensitive to benefit security. Uses Company $$ Uses Employee $$ Uses Company $$ $$ $$ • Opportunity for employee to contribute • Opportunity for company to contribute • Premium payments are currently deductible to the • No current tax deduction for employer • No current tax deduction for employer company as compensation expense • No current taxable income for employee • No current taxable income to employee Income T Tax C Consequences • Amount of Premium payments are currently taxable • Employer get tax deduction when benefits are paid • Employer gets tax deduction when benefits are to the employee. Employer could pay tax cost via a • Benefits are taxable to employee when received paid double bonus • Pass-through Entities – Employee deferrals would be • Benefits are taxable to employee when received • Any policy cash values grow tax deferred taxable to the business owner(s) 11 Executive Benefit Plan Comparison (Cont.) http://schiffbenefits.com/wp- content/uploads/2017/01/SBG-Executive- Benefits-Grid.pdf Non-Qualified Non-Qualified Supplemental Executive Bonus Plan (EBP) Deferred Compensation Plan Executive Retirement Plan (SERP) (DCP) Impact on Financial Current charge to earnings for bonus. Bonus Must accrue benefit liability and expense during Must accrue benefit liability and expense during reportable as compensation working years of employee working years of employee Statements • Vesting and Control Employee owns the policy. Rights can be limited Employee deferrals are 100% vested A vesting schedule is possible as determined by • through a Restrictive Endorsement Employer contributions may have a vesting the employer. schedule as determined by the employer Employer Cost Recovery (recoupment of premiums) No – not always, but employer can purchase key Typical to recover the net after-tax cost of the plan Typical to recover the net after-tax cost of the man insurance to recover employer costs plan Plan Performance Risk Employee enjoys the benefits and bears the risk of Employer bears all of the plan risk with respect to Employer bears all of the risk with respect to the policy performance assets held for plan purposes assets held for plan purposes Plan Assets subject to corporate general creditors Plan Assets subject to corporate general creditors Security Employee’s benefit is effectively secured by the Employee is an unsecured creditor of the employer Employee is an unsecured creditor of the policy that he or she owns and has no interest in any assets held for plan employer and has no interest in any assets held purposes for plan purposes 12 6
7/17/20 Sample Benefit Plan 82% of Fortune 1000 have some “plan” 13 Po Post Co Covid Retire rement B Benefit D Design C Changes • Eliminate Employer 401K Cash • Alternative: Flow ($182,000) • Benefits of Change • Eliminate Safe Harbor Contribution • Redirects Refunds • Eliminates Company Cash Flow • Eliminate Company Match • Allows for rewarding those the • Reduce Company Match company needs to reward • Has no material impact on employee, • What is the Impact? plus provides flexibility to employer. • Will there be refunds in January? • May provide key man life insurance • May create an asset that provides • Is there an alternative? liquidity for operational purposes • Can it be done at almost no cost? • Can this be done on a discretionary basis? 14 7
7/17/20 NQDC 4 409A P Projected B Benefits Ret Last Name First Name Gender Birth Date Age Retirement Ret Date Compensation Death Benefit Benefit Client A Female 04/12/1977 42 65 07/01/2042 185,021.00 185,021.00 90,066.97 Client B Male 11/13/1959 59 65 07/01/2025 275,000.00 275,000.00 0.00 Client C Female 10/24/1966 52 65 07/01/2032 162,300.00 162,300.00 38,021.51 Smith D Male 05/04/1972 47 65 07/01/2037 196,000.00 196,000.00 91,784.59 Smith Joe Male 01/09/1968 51 65 07/01/2033 194,125.00 194,125.00 49,753.24 Smith Kelly Male 03/21/1980 39 65 07/01/2045 190,895.00 190,895.00 147,191.66 Assumes 6% account growth on deferral account Each Participant has a different deferral percentage from 10-20% of compensation 15 COL COLI (71% o of C Companies I Informally F Fund t these b benefits w with C COLI) § Unique f financial v vehicle f for generating s surplus to m meet company s selective b benefits obligation obl ons § Company i is s sole ow owner, , pr premium pa payer, a and be benefici ciary of C f COLI polici pol cies 16 8
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