NONQUALIFIED DEFERRED COMPENSATION Asking the question: Do your company s plans REALLY work?
NONQUALIFIED DEFERRED COMPENSATION Do your company s plans really work? 92% OF THE FORTUNE 1000 OFFER A 409A NONQUALIFIED DEFERRED COMPENSATION PLAN TO KEY EXECUTIVES. And 409A Nonqualified Deferred Compensation (NQDC) can be the most versatile pay element of Total Rewards. Yet for many, NQDC is the FORGOTTEN pay element. Having a plan does not necessarily mean you have your best strategy. 2
We measure inputs. A strategy means that Fulcrum Partners has tested variations of plan designs with your unique needs in mind. And we analyze outcomes. A plan shouldn t be casually selected as if you picked it off the shelf. 3
CHART 1: RETIREMENT COMPENSATION SUMMARY: CEO Company contributions, as a percentage of salary, to all qualified and nonqualified retirement plans. Real data regarding a sampling of 12 companies, all within the same industry. CEO A CEO B CEO C CEO D CEO E CEO F CEO G CEO H CEO I CEO J CEO K CEO L Why do these numbers vary so much from one executive to the next? 4
CHART 2: CAREER RETIREMENT BENEFIT: RETIREMENT INCOME REPLACEMENT RATIO (RIRR) CEO Annual lifetime income replacement, as a percentage of projected final total cash compensation (salary plus bonus), created by company contributions to all retirement plans, assuming target performance. CEO D CEO A CEO C CEO L CEO E CEO B CEO J CEO F CEO H CEO K CEO I CEO G Clearly some companies treat retirement as a significant pay element while other companies have no strategies at all. 5
QUESTIONS YOU MUST ASK What is your CEO s projected retirement income replacement ratio (RIRR)? Why is it what it is? What should it be? Does your CEO s projected RIRR reflect your overall compensation strategy? What about your other key executives? 6
CONSIDER CORPORATE OBJECTIVES COMPANIES HAVE MANY REASONS TO USE DEFERRED OR FUTURE COMPENSATION. Drive performance. Drive corporate messaging. Incentivize and retain new hires. Replace lost benefits ( make whole arrangements) for new hires. Improve employee morale. Award spot bonuses or special project bonuses. Manage compensation subject to clawback. Incentivize employees to accumulate company stock on a tax preferred basis. Supplement existing retirement programs and Social Security. Facilitate financial wellness, creating consistency with other companies initiatives. And inspire retention which is a reflection of loyalty. 7
RETENTION a of loyalty. Loyalty occurs when the needs of both parties are satisfied. Deferring income is an act of trust and faith between the company and the employee. Employers and employees who partner for their common interests, achieve strategic success through effective plan sponsorship. Loyalty from employer to employee. And from employee to employer. 8
CONSIDER EXECUTIVE OBJECTIVES Retirement security. Financial wellness. Flexibility to handle financial uncertainties. Employees today face many financial insecurities. Increasing numbers of workers postponing retirement beyond age 65. 70% of workers planning a second career after retiring from their first one. And most depending on Social Security and employer sponsored plans alone. Rule of Thumb: Annual retirement income TARGET X 20 = RETIREMENT SAVINGS TARGET. For example, to have $100,000 in annual cash flow at retirement, you need savings of $2,000,000. 9
CONSIDER MUTUAL OBJECTIVES Employers want maximum performance from executives. Employees want incomes, retirement security, tools for saving, tools for retirement, and partnership with their employer. IRS CODE 409A impacts both corporate and executive objectives. Both organizations and executives must look at deferred compensation as part of Total Rewards, asking: Why? And, how does it benefit me? 10
WHO IS IMPACTED MOST WHEN YOUR COMPANY S PLANS FALL SHORT? NOT THE CORE EMPLOYEES NOT THE C-SUITE Your Core Management Team is at greatest risk. In general, employees in this group are: Over the Social Security wage base. Limited in qualified plan contributions. Missing out on the C-Suite incentives. THE MOST SIGNIFICANT IMPEDIMENT TO WEALTH IS TAXES. 11
CONSIDER THE GAP Today s tax qualified retirement plans and social programs, for the most part, adequately provide for the worker earning $90,000 and under. However, those earning over the social security wage base of $113,700 start losing benefits. Additionally, tax qualified plan limits do not allow those employees to save enough for a comfortable retirement. The most efficient way to address this issue is to supplement the 401(k) with a 409A plan. A 409A plan affords your core management team the same opportunity to provide for retirement as your core employees receive. A 409A plan can complement the 401(k). A 409A plan, with an egalitarian design, goes a long way in neutralizing the impact of reverse discrimination in retirement planning. 12
SUMMARY Many companies demonstrate a commitment to employees in health and wellness. Extending that commitment to financial wellness through a nonqualified strategy is LOGICAL. Install an Executive Partnership Plan utilizing 409A. Sponsors who partner with key employees; discover the win-win. A well-strategized nonqualified deferred compensation plan is not a product you buy off a shelf. Instead, it is a customized strategy designed for your needs and your future. NQDC plans are the most effective, taxefficient, wealth-accumulating vehicles for highly compensated executives. If you don t have a plan, you need one. If you do have a plan, let Fulcrum Partners review it for you. MAXIMIZE UTILITY FOR BOTH THE PLAN SPONSOR AND THE PARTICIPANT. WORTH REPEATING: A NONQUALIFIED BENEFIT STRATEGY IS THE MOST VERSATILE PAY ELEMENT WITHIN TOTAL REWARDS. 13
FULCRUM PARTNERS LLC LEADERSHIP IN INTEGRATED EXECUTIVE COMPENSATION In every industry, there is a leader a distinctive expert that stands above all others. When the industry is executive benefits consulting and you are seeking the true experts in integrated executive compensation, that leader is Fulcrum Partners. Leadership, understanding, creativity, and accountability, all validated by knowledge and wisdom this is the value proposition the specialists at Fulcrum Partners intend to bring to every client relationship. Energizing synergistic strategic alliances in order to help fulfill each client s specific needs, the team at Fulcrum is trusted by many of the biggest names in business today, including both publicly held and large private companies. CORE COMPETENCIES OFFERED BY THE PROFESSIONALS AT FULCRUM PARTNERS: Executive Benefits Consulting Executive Benefit Benchmarking Benefit Financing Strategies Executive Wealth Management Institutional Investment Advisory EXPERTISE IN THE SERVICES YOUR ORGANIZATION NEEDS Fulcrum Partners, LLC was founded in Ponte Vedra Beach, Florida, in 2007, by four former senior consultants of the Executive Benefits Division of Clark Consulting. Today Fulcrum Partners has grown to a team of 15 partners and serves its clients with more than 200 years of combined professional experience. Our partnerships with hundreds of public and private companies throughout the country position us to help our clients in areas beyond executive compensation and benefits consulting. We provide consultation and coordination in specialized areas of broad-based employee benefit programs, focusing on areas for improved efficiencies and effectiveness in the employee benefits market. CONTACT: Fulcrum Partners LLC 818 A1A North, Suite 304 P.O. Box 1909 Ponte Vedra Beach, FL 32004-1909 904.296.2563 press@fulcrumpartnersllc.com Securities offered through Registered Representatives of ValMark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Suite 300, Akron, OH 44333-2431, Tel: 1-800-765-5201. Investment Advisory Services offered through ValMark Advisers, Inc., which is an SEC Registered Investment Advisor. Fulcrum Partners LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc. 2013 Fulcrum Partners LLC 2013 Fulcrum Partners, LLC. No part of this may be reproduced by any means without the express written permission of Fulcrum Partners LLC. 14
Contact: Fulcrum Partners LLC 818 A1A North, Suite 304 P.O. Box 1909 Ponte Vedra Beach, FL 32004-1909 904.296.2563 Securities offered through Registered Representatives of ValMark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Suite 300, Akron, OH 44333-2431, Tel: 1-800-765-5201. Investment Advisory Services offered through ValMark Advisers, Inc., which is an SEC Registered Investment Advisor. Fulcrum Partners LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc. 2013 Fulcrum Partners LLC 15