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Oct
11
The scoop on Section 409A…what you don’t know can hurt you and your employees!
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION What exactly is Section 409A, anyway, and what does it have to do with my NQDC plan? That's a question that can easily be asked by business owners who already have NQDC plans as well as those who are just contemplating setting one up. Basically, Section 409A is the IRS code that governs your plan. It lays out all the restrictions on deferral elections and structure of your plan as well as rules for plan distributions. In short, if your plan is not compliant, you invite an audit as well as possible penalties if your plan is found lacking. Section 409A was added to the tax code in 2004 when Congress passed the American Jobs Creation Act. The code applies to...
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Oct
11
NQDC’s are fast becoming key employees’ new BFF for retirement income
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION The economy is coming back – slowly, but surely. And that's making company NQDC plans more and more popular. A study published in June 2014 by the Principal Financial Group showed that 91% of plan participants value them as a significant tool to help them reach their retirement goals. Twenty-six percent are counting on their NQDC plan to provide their retirement income. And 37% have decided to increase their deferral amount next year. The study began in 2008 so it was designed to track NQDC participant activity for a good while. It measured plan experience of both sponsors and participants and their satisfaction with the plans. It also identified gaps in...
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Oct
11
Why work with an advisor to set up and manage your NQDC plan?
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION There are multiple first-sentence answers to that question! But the one I will choose is ‘Just because your NQDC plan is not subject to ERISA doesn’t mean you don’t have a fiduciary duty to uphold.’ Just like family members who serve as trustees for family trusts, small business owners may not realize the impact of their role as a fiduciary when setting up an NQDC plan. Large companies usually set up these plans through their human resources departments and have plenty of employees they can dedicate to monitor regulations, finances, and administration of the plan. Even they can benefit greatly from an advisor who can bring all aspects of NQDC functions and administration...
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Oct
11
Can online reputation risk affect your NQDC plan?
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION That’s a scary question! It may seem that something like online reputation risk—the topic of our last post—would have nothing to do with your NQDC plan. But let’s take a closer look. When it comes to younger executives who are looking for companies to gain experience in what they want to do, online reputation matters a great deal. It likely matters even more to them than the fact that you have an NQDC plan! Younger executives can be just the shot-in-the-arm kind of talent your company may need. The only way to attract them is to offer them what they are looking for and to understand how they assess business opportunities. To older generations (including us – Yikes!), having...
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Oct
11
How to manage fraudulent online review risk for your small business
posted by TOM FROEHLICHin UNCATEGORIZED A friend of mine recently wrote an article about a small business owner who lost one-third of his business based on unfavorable online reviews. He had to fire 80 of his employees and he is still fighting legal battles to reestablish his previously pristine reputation. Although external forces such as fraudulent reviews can seem beyond our control, there are ways to manage such risks. The risk is real and will not go away if you simply ignore it. And it’s dangerous to think it will not affect you! Companies wishing to boost their reputations and harm their competition hire people to post unfavorable reviews. And since popular review sites like Yelp do not reveal the identities of the reviewers, it...
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Oct
11
NQDC deferral elections: Important considerations for your employees
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION Just because your top executives are brilliant at what they do doesn’t mean they don’t need help when enrolling in or making deferral selections for your NQDC plan. Here are some things they should be thinking about. How much to defer? This depends on their financial situation, the goals they have, and whether you plan allows them to defer 100% of their salary along with their bonuses. This is one of those decisions best made within the context of an overall financial plan. If they have just become eligible to participate, they may have a time constraint of 30 days for making a deferral election. If you’ve structured your plan to make their deferred compensation elections...
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Oct
11
Explaining enrollment procedures for your NQDC plan can encourage participation
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION We all, as business owners, try to encourage our employees to participate in the retirement plan options we have provided them. We may think less often about explaining just how to do that! As human beings, we often need specific ‘next steps’ to provide the incentive for taking action. Education on how to participate also helps your employees make informed decisions about their deferral options. Changing these options after-the-fact can incur tax consequences. So you can add even greater benefit to your plan simply by providing your top people all the information they need before they actually need it. First, it’s good to establish eligibility for the plan. Top executives...
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Oct
11
How ‘Qualified’ is your qualified retirement plan?
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION In our conversations and thoughts about 401(K) and other so-called ‘qualified’ retirement plans, we don’t often think about what makes them qualified! These plans are extremely valuable to your employees and they are a great benefit you, as their employer, provide them. But what happens if your ‘qualified’ plan doesn’t qualify? Qualification of these plans hinges on IRS rules. Mainly, these qualifications for retirement plans are governed by the Employee Retirement Income Security Act, commonly known as ERISA. ERISA sets minimum participation levels, vesting parameters, benefit accrual rules, and funding requirements. If your plan does not comply with these standards, it fails...
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Oct
11
How is your NQDC plan affected by capital markets volatility?
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION Are the equity markets too rich? What will happen to my deferred compensation if the market goes south? Those may not be questions your employees are asking you but they may be questions that are on their minds. In fact, not so long ago, the value of NQDC plans was being questioned in earnest. The winds of the 2008 crisis and its aftermath had many employers wondering about the viability of offering NQDC plans to their employees. We only have to look at what’s happened to the markets since 2008 to know that those who took advantage of the opportunity in 2008 forward to defer income made a good decision. Now that we’re in a place some may think is the next market top, there...
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Oct
11
Tax planning for NQDC plan benefits using split-dollar plans and employee ILITs
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION It’s tax season. So we’re all thinking about ways to reduce our tax liabilities. What we may not be thinking about are ways to reduce the estate tax liability on our employees’ NQDC plan distributions to family members. Let’s say the worst happens and an employee dies before retirement age. More than likely, there’s a death benefit clause to your NQDC plan for that employee’s family. Let’s further say that you’ve used a cash value life insurance policy to fund your NQDC plan. As long as this policy is classified as an unrestricted asset of your firm, your NQDC plan remains unfunded and there is no tax liability for your employee’s deferred election amounts to his or her...
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Oct
11
Your NQDC plan and our sister company, Froehlich Financial Group
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION As you know, through AEB we focus on small business owners and help you recruit, reward, and retain your best employees with the benefits that a well-designed non-qualified deferred compensation plan (NQDC) can offer.  AEB has a sister company, Froehlich Financial Group (FFG). Many of our FFG clients are also small business owners and on our new website, we’ve featured how well our NQDC plan services can dovetail with their financial plans, their estate plans, and their succession plans. Since we’ve just launched our new site, we thought it was the perfect opportunity to let you know what we offer on the investment and financial planning side through Froehlich Financial Group....
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Oct
11
Social Security, Medicare, and your NQDC plan
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION We’ve been talking about retirement income deferral in your NQDC plan and how you can use your plan to build better relationships with your employees. The two main ingredients for that are communication and education. The more transparent you can be about your plan, the more your employees will appreciate it (and you!), and the better informed choices they can make. We’ve also talked about positioning your NQDC conversations within your employees’ overall financial plan. Taxes are a big part of that and knowing how the plan can affect their tax liability will help them manage their financial and investment lives. So, the elephant in the room in all of these discussions is...
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Oct
11
How will your NQDC plan affect your employees’ financial planning strategies?
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION We’ve talked before in this blog about how your NQDC plan should be part of a larger financial planning strategy for your employees. Positioning your NQDC plan as part of their overall financial planning outlook also helps your employees become more informed about how the plan can best benefit them. Your NQDC plan is designed to come into play after they have maxed out their 401(K) contributions. Since they have a number of deferral options open to them, it helps to offer them a special calculator. This will help them see in real time and based on their personal situation how powerful the effects of pre-tax savings and tax-deferred, compounded growth can be. They’re probably...
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Oct
11
Encourage early planning for NQDC deferment decisions
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION One of the best ways you can show your employees how much you appreciate them is to set up a non-qualified deferred compensation (NQDC) plan. One of the next best ways you can show appreciation to them is to educate them on how to use it! They need to know all the facts—not just how it works, but how they can make it work best for their needs and objectives. Traditional pension plans rewarded executives and employees who started out at a company, stayed with it for their entire careers, and then retired confident the company would take care of them and their families for the rest of their lives. It just doesn’t work that way anymore. Security in the workplace has changed—the...
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Oct
11
A NQDC Plan Can Help You Share The Wealth If Your Business Is Acquired
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION It’s happened. Your dream of someday selling your company for X times your investment has actually been realized. You’ve built your company well and you’ve shown your employees that you value them by setting up a fabulous benefits package through a well-designed NQDC plan. How will this transaction affect your plan participants and how can you prepare them for the upcoming changes? First, let’s address what could happen. Depending on how your plan is set up, the event could result in what is called a double whammy for your employees. One of the first questions they may ask upon hearing the news is if their job is secure. It’s certainly not uncommon for mergers or buyouts to...
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Oct
11
Attracting and Retaining Top Talent is Top Priority in 2014
posted by TOM FROEHLICHin RETAINING KEY EMPLOYEES Business sentiment is already looking brighter this year based on the CFO Alliance 2014 CFO Sentiment Study. The study covers industries across the board and has over 500 respondents. There were some interesting statistics this year. Although most (70%) still consider the current economy to be weak, the microeconomic outlook is encouraging. Higher earnings are expected in 2014 by 69% compared to 52% last year. Seventy-nine percent expect top revenue growth and 63% expect to spend more. Over 66% expect to increase employee wages and benefits. Not surprisingly, one of the priorities for business growth is finding and retaining top talent. This goes hand-in-hand with the expectation to...
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Oct
11
Happiness: A Great Key to Employee Retention and NQDC Plan Success
posted by TOM FROEHLICHin RETAINING KEY EMPLOYEES Happy people are more productive and a company with happy employees is more successful. That’s the conclusion of Shaun Achor in his recent book, “The Happiness Advantage.” Now, I know what you may be thinking. “How can I focus on making sure my employees are happy when I’m trying to make a profit in a still challenging economy and keep the great talent that I do have? Is happiness really that important?” Several recent studies say that it is. In fact, one study showed that happy employees are 10% - 12% more productive. That kind of productivity increase could make a significant impact on your bottom line. A study by an Australian economics professor found that happy people make more...
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Oct
11
Trends In NQDC Plan Use Can Open Up Opportunity For You And Your Employees
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION This month we’ve been looking at some of the trends in the NQDC marketplace and how they may offer advantages for your company. We talked about three of those trends in the last post: Deferring cash compensation and bonuses to maintain income tax thresholds Spreading plan distributions over a 5, 10, or 15 year period Creating a director deferral plan to attract high quality outside executives for your board This time, we want to look at a fourth trend and then we want to look more closely at the opportunities each of these trends may offer your company and your employees. Trend: Restricted Stock Unit (RSU) Plans Restricted stock units are different than restricted...
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Oct
11
New Trends For Using NQDC Plans May Be Attractive For Your Company!
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION We’ve talked before in these posts about identifying trends in the industry that may or may not be right for you. Just because it’s a trend doesn’t mean it’s a fit for your business growth goals. Either way, knowing trends in the industry and in your business better equips you to compete in your marketplace. Some new trends springing from the tax law changes of 2013 and 2014 include: Trend: Spreading plan distributions over 5, 10, or 15-year periods It’s predicted that distributions spread out over 10 years are going to become more prevalent because of a little known law that prohibits states from taxing certain non-resident retirement and pension income. If you live in a...
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Oct
11
NQDC Plans Make Tax Management Easier for Your Key Employees
posted by TOM FROEHLICHin NON-QUALIFIED DEFERRED COMPENSATION It’s early in the year – not exactly the time when we think about tax planning. That’s usually considered a year-end activity. But tax management is most effective if it is done throughout the year within an overall tax management plan. One of the key tools your employees have is the NQDC plan you sponsor for them. We talked last month (and last year, as it happens) about the new tax laws and how you can use them to make your NQDC plan more attractive to your key executives. Timing is truly everything and it’s no different in this case. Taxes are likely to continue going up and as they do, your NQDC plan becomes more valuable. Corporate earnings overall have also been rising...
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Oct
11
Changing Deferral Elections to a Different Date
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION We’ve talked about some of the advantages the new tax laws have offered you as the sponsor of a NQDC plan. We’ve also talked about the importance of coupling good financial planning to ensure your employees’ income makes the most of those advantages by timing deferral elections and income distributions judiciously. The thresholds that trigger higher income and capital gains tax rates as well as the Medicare surtax mean that employees have to think more carefully about timing their deferrals and distributions. Let’s delve a little deeper to see just what the restrictions are on these timing issues. Changing a scheduled distribution to avoid exceeding the...
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Oct
11
New Tax Laws Increase Your NQDC Plan’s Value To Key Employees, Part II
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION In Part I of this post, we talked about the advantages of deferring income to stay under the thresholds for the  new, higher tax rates on both income and capital gains. Now we want to address the Medicare surtax of 3.8%. The Medicare surtax is completely separate from the American Taxpayer Relief Act and the thresholds for the tax are lower–$200,000 in modified adjusted gross income (MAGI) for single investors and $250,000 for married couples filing jointly. Medicare tax is paid upon deferral of income or vesting of employer matches or contributions. The normal Medicare tax rate is now 2.35% (up from 1.45%) but an additional 3.8% tax kicks in on dividend income...
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Oct
11
New Tax Laws Increase Your NQDC Plan’s Value To Key Employees, Part I
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION Just before the end of last year, everyone was scrambling to avoid the new tax increases that were ushered in on January 1 of this 2013. That’s when the American Taxpayer Relief Act (ATRA) kicked in, raising the tax rate on supplemental income to 39.6% from 35%. The flat rate for the first $1 million of supplemental income remained the same at 25%. Your employees pay these taxes when they take distributions from the income they’ve deferred through your NQDC plan. Since the top rate applied to supplemental income above $1 million went up 4.6%, you can offer more value through your NQDC plan to talent you are trying to attract. It’s also a nice bonus to existing...
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Oct
11
Who’s Minding The Store on Your NQDC Plan Compliance?
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION Like anything else, your NQDC plan is not designed to be set up, then to just let sail. Things change over time and this includes regulatory requirements. Your NQDC plan is governed by Section 409A of the Internal Revenue Code. If the plan doesn’t comply with 409A, your employee may lose valuable tax benefits on the income he or she elects to defer. The deferred income could then be included in the current tax year’s compensation, handing a not-so-pleasant surprise to an employee you value highly and whose contributions are important to your company’s growth. The IRS allows employers to correct any failures to meet the code, but those corrections must be done...
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Oct
11
To Hedge Or Not To Hedge? Options For Managing Your NQDC Plan Liabilities
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION We’ve talked before in this blog about the decision to fund your NQDC plan or to leave it unfunded. There are advantages and disadvantages to both. And, there is a third option that you may have heard other business owners talk about. It’s called hedging and it’s a strategy that may or may not be right for you. NQDC plans are excellent tools for rewarding your top executives and helping them plan their futures. They also carry a certain amount of liability for you, the plan’s sponsor. Often, sponsors fund benefit payouts from operating profits or other company resources. This means the investments chosen for the assets may need to be limited to low risk/low...
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Oct
11
Your NQDC Plan Can Help Your Business Weather the Government Shutdown
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION So they shut down the government. And you’ve read article after article telling us how bad things will get for the economy if the shutdown is protracted and/or the debt ceiling is not raised. You’re a small business. The last thing you need is an economic downturn Redux. Hopefully, all of this will be behind us by the time you read this. Enter your NQDC plan. Your plan can act like a hedge during uncertain economic times. Depending on the type of plan you have, you may be able to reinvest the deferral amounts your top executives select back into your core business until it’s time to make designated distributions. This can help you hedge against unforeseen...
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Oct
11
Your NQDC Plan and Handing Down the Family Business
posted by TOM FROEHLICH, CIMC®, CIMA®in EXECUTIVE RETIREMENT The SBA Business Owners Market Study has been interesting because it brings together so many aspects of the concerns facing small business owners today. Number 10 on the list of concerns is having an exit strategy. A trend over the last several years seems to have been for business owners to sell the business. People cite the small percentage of family businesses that make it to the third generation and those percentages are valid. But there seems now to be a shift in the business-selling tide. The number of business owners who plan to give their businesses to family members almost doubled (to 21% from 11%) from the previous SBA survey; an additional 8% plan to sell their...
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Oct
11
The Disconnect Between What Owners Say Is Important & What They Actually Offer
posted by TOM FROEHLICH, CIMC®, CIMA® in RETAINING KEY EMPLOYEES Providing supplemental key employee benefits ranks decently high on the top 10 list of priorities according to the SBA “Business Owner Market Study.” It ranks #6 and that ranking comes on top of a significant increase in the number of small business owners who offer qualified retirement plan benefits. Yet even though 56% of owners recognize that their qualified plans place limitations on key employee contribution amounts to these plans, 68% of business owners have done nothing to counter those limitations. This is likely because small business owners are busy people, have limited resources, and tend to focus on short-term goals rather than long-term ones. At American...
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Oct
11
Using Your NQDC Plan To Enhance Other Key Employee Benefit Options
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION Your key employees play a direct role in the financial success of your business. More and more, small business owners are recognizing the impact key employees have on business growth and business reputation. Many key employees are highly visible. They also command the highest salaries. So it makes sense to a) know how to attract top talent and b) once you’ve attracted them, know how to keep them. We’ve talked before about the importance of viewing your retention and reward efforts for your top executives through their lens. This is the most efficient way to understand how you can best help them achieve their personal and professional goals. It’s an investment in...
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Oct
11
To Fund or Not To Fund? That Is An Important Question!
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION One of the attractive aspects of NQDC plans is that you can offer your top employees a retirement option that complements your qualified retirement plan without having to commit operational or other funds that may be needed for other purposes. On the other hand, funded plans may give your top executives more confidence that their deferred compensation will actually be available when they need it. This entails keeping up with ERISA requirements as well as taking what may be much needed capital out of your company’s coffers. Is there any middle ground? The answer is yes. They all fall within the ‘unfunded’ category. Why does it make sense to choose the ‘unfunded’...
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Oct
11
Being a Contrarian May Provide A Clearer Path to Your Company’s Goals
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION We’ve all heard of crowd theory in investing—you know, how investors follow the ‘crowd’ as a stock climbs to unjustifiable heights, increasing the risk of those who paid a high price for their shares just before a market correction. That’s when being a contrarian—going against the crowd—may be worth considering, depending on the situation and your tolerance for risk. Another situation where being a contrarian can make sense is in designing your nonqualified deferred compensation plan. Last time, we talked about the trend to bundle nonqualified plans with qualified plans such as a 401(K). In this post, we’ll outline a step-by-step process for going against the...
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Oct
11
Trends in the NQDC Market and How They May Affect Your Plan
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION It’s essential to keep up with trends in the marketplace. Doing so helps keep our products and services current and demand for them strong. This is no less true for employer sponsored non-qualified deferred compensation plans than it is for anything else. Only thing is, trends may not always be what’s in the best interest of our employees or for your company. A case in point is the current trend to bundle a non-qualified plan with a qualified plan. About 8 employers out of 10 are bundling their nonqualified plans with qualified ones. One reason for the increase is the sense that bundling plans together simplifies things. And in a world where things are only...
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Oct
11
What Exactly Is a SERP and How Can You Use It?
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION You may have heard of a SERP and yet, not really know what a SERP is or how to use one. A SERP is simply a different form of NQDC plan. NQDC plans are either deferral plans or SERPS—supplemental executive retirement plans. The easiest way to remember the difference is this: each type of NQDC is exactly what it sounds like it is. Deferral NQDCs allow employees to voluntarily defer receipt of part of their compensation until a future date. A SERP is designed to supplement qualified retirement plan options (such as a 401(K)) with additional pension-like benefits. So, a SERP is really a nonqualified defined benefit plan similar to a pension. It is designed to...
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Oct
11
Your Company Match Is Not Restricted to Your 401(K) Plan!
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION When employees think of their 401(K) plans, they often also think of the possibility that their employer will offer some type of match program based on their contributions. They may not realize that you, their employer, can also do a match for their NQDC plans. This match can be in the form of company stock. Or, if your company is public, you can allow your employees to invest a portion of their NQDC contributions in company stock. The purchase has to be made specifically as in investment for their retirement plan. The stock cannot be sold for cash or to fund purchases but it can be sold to make a different investment in their NQDC plan. So, you can use your...
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Oct
11
Market Conditions Make Your NQDC Plan An Important Resource
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION We don’t often think about market activity as it relates to your NQDC plan. But these days, the markets can help you make an even stronger case to your employees for participating in your plan. Let’s see why. It’s pretty simple, really. Let’s start with $1 million in retirement savings. Sounds like a lot, right? And it is, at least from the aspect that only 10.1% of all American households have $1 million in net worth, including the value of their homes. The percentage is even smaller for Americans with $1 million in retirement savings, exclusive of home values. Next, let’s look at the bond market. If you invested in bonds during the 2008 crisis, you’ve come...
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Oct
11
Using Your NQDC Plan to Attract and Retain Young Talent
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES It’s true that most young people today are looking to accumulate experience at a variety of companies and may not even be thinking about ‘landing’ at a single company at any point in their careers. Their careers are exactly what they are focused on, not earning a pension or climbing the ladder. Traditional pensions are pretty much history for these generations. They are accustomed to mobility, instant information, and expect to be rewarded for their accumulated experience and expertise. As an employer, these characteristics may make you think that younger generations are not the best candidates for your NQDC plan. In reality, your NQDC...
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Oct
11
How to Structure NQDC Plans to Help Pay for College
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES We’ve focused in these posts lately about the needs of different generational segments. Your NQDC plan can not only help your Gen-X employees pay for their kids’ college expenses, it can also increase their eligibility for financial aid. Here’s how. Specifically, your NQDC plan can help employees plan for tuition as well as living expenses. It can increase eligibility for aid from two perspectives: needs-based financial aid and tax aid in the form of the American Opportunity Tax Credit of up to $2500 per child. Let’s talk about financial aid planning first. The two forms your employees will need to look at are the FASFA (Free...
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Oct
11
Generational Considerations Should Factor into NQDC Plan Design
posted by TOM FROEHLICH, CIMC®, CIMA®in EXECUTIVE RETIREMENT We so often get caught viewing traditional wealth management processes—including retirement plans—through the traditional lens. Fact of the matter is, retirement needs today are different than they used to be. Retirement as a concept is in transition. So, shouldn’t our retirement plans be flexible enough to accommodate a variety of needs? That’s the beauty of the NQDC plan. Its flexibility is a hallmark benefit. To take this even further, the PEW Charitable Trusts recently published a study that compared how well prepared different generational segments are for retirement. The study focused on two basic sets of information: Wealth accumulation by various generational segments...
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Oct
11
Understanding tax withholding requirements for your plan
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION One of the frustrations employers can have is educating their key employees on the benefits of their non-qualified deferred compensation (NQDC) plans. But central to that issue is understanding the benefits yourself, as an employer offering the plan. If you don’t know why NQDCs are so beneficial to you and your company, how can you possibly expect to explain the benefits to your employees? Let’s start with the tax code. The most commonly discussed rules are found in Section 409A. These rules were enacted after January 1, 2005 and basically outline the requirements for establishing an NQDC plan and specific guidelines on how to administer it. But there are a...
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Oct
11
Make Your Employees Good Plan Participants, Part II
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION
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Oct
11
Make Your Employees Good Plan Participants, Part I
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION In a recent post, we talked about how understanding the benefits your NQDC plan offers you can help you understand how best to position your plan to benefit your employees. These next two posts help you do just that. We’ll look at ten things employees need to know to be good plan participants—five in this post and five in the next one. Most of these have to do with basic financial planning principles. Don’t assume your employees know them! Take full advantage of your other retirement plan programs. Your NQDC plan is designed to pick up on providing benefits where other plans leave off. It’s not designed to be as substitute for them. Show your employees the...
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Oct
11
NQDC Plans Benefit from Flexibility
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION Non Qualified Deferred Compensation (NQDC) plans are usually thought of as retirement income planning vehicles. But the flexibility of the plans makes them potentially much more than that. Depending on how your plan is set up, it can allow your employees to create target distribution dates that match major events in their lives or the lives of their family members. This means that employees can take a distribution even while they are still working for it. It's called an in-service distribution. Other names for it include specified-date distribution and fixed-date distribution. Whatever you call it, it extends the flexibility of your plan to function like other...
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Oct
11
NQDC Plans Have a Silver Lining With New Healthcare Act
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION News articles highlight the burden of the new healthcare act on small businesses but for employers with NQDC plans, there’s a two-sided silver lining. Whatever your political leanings and/or feelings about the new healthcare plan, it gave employers with NQDC plans a couple of nice gifts. The context of these gifts is the new Medicare 3.8% surtax on net investment income and Social Security income. Deferred income within your NQDC plan is not part of your employees’ modified adjusted gross income (MAGI), to which the surtax may apply. It is, however, subject to FICA—the taxes that are set aside to pay Medicare and Social Security benefits—at the time of deferral....
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Oct
11
Announcing: Meet the Money Managers Exclusive Event
posted by TOM FROEHLICH, CIMC®, CIMA® APRIL 14,2013 in EVENTS FOR EXECUTIVES You are cordially invited to attend a special wine & beer tasting event exclusively for clients and Strategic Alliances of Froehlich Financial.In the current market and economic environment it is essential that your investments are being managed in a manner that is aligned with your goals and objectives. Equally important is that your investment managers are protecting and preserving your capital, especially if income distribution is in the not so distant future. Come join us and learn how the right managers can navigate your portfolio in these challenging markets. You will hear from… Chris Travers,Managing Director Rothschild Asset Management Chris...
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Oct
11
Pre-Tax vs Post-Tax Employee Bonus Dollars
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION Which is better for you and your employees…post-tax bonus dollars or pre-tax? Plans such as Roth 401(K) plans and Roth 403(b)plans are getting a lot of attention these days because the increased thresholds have made them available to more workers. But their advantages may be limited. This doesn’t mean you shouldn’t offer them. It may mean that you should consider adding a non-qualified deferred compensation (NQDC) plan to complement them. Let’s do a quick comparison of the advantages of post-tax bonus dollars and pre-tax bonus dollars. Plans yielding post-tax bonus dollars have already delivered their benefit punch. Sure, the withdrawals are tax-free but then,...
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Oct
11
Non Qualified Deferred Compensation (NQDC) Plans and Key Employee
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION Non Qualified Deferred Compensation (NQDC) plans turn fiscal cliff tax changes into benefits for you and your employees. Everyone feared the fiscal cliff. Right up to the last minute. Then Congress supposedly saved the day. But that doesn’t mean it was a non-event. Many taxpayers are already feeling the effects of higher income tax rates, either from becoming subject to the higher tax rates or from the payroll tax increase. And there’s more. The Medicare surtax and the Social Security tax are still not indexed for inflation. So, just like the alternative minimum tax (AMT), the reach of these two taxes will broaden significantly if left unchecked. Congress...
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Oct
11
Using Your Non Qualified Deferred Compensation (NQDC) Plan to Treat Your Employees Like Family
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION I hear so many employers struggling with how to motivate their employees and also how to attract the top talent they need to realize their dreams of business success. We get inundated with commentary all the time that advises us to offer flex time or perks like athletic and sports club memberships. Those perks are nice options for rewarding performance. I've looked at all of those things and have used them on occasion. But what I consistently find is that employees want to be treated like your business family. They probably won't tell you that in those exact words. But they want you to be in tune with their hopes and dreams for their own lives. That may sound...
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Oct
11
American Taxpayer Relief Act of 2012 Favors In-Roth Conversions: Will This Benefit Your Employees?
posted by TOM FROEHLICH, CIMC®, CIMA®in EXECUTIVE RETIREMENT American Taxpayer Relief Act of 2012 Favors In-Roth Conversions: How Will This Benefit Your Employees…Or Will It? The scramble to avoid the worst of the fiscal cliff at the end of 2012 made it easier for plan participants to convert to a Roth account inside their employer retirement plan. It may not be beneficial for all participants to convert. How do you know who it will benefit and who it won’t? If a plan participant expects to be in a similar tax bracket at retirement, it may not matter whether pre-tax dollars or Roth dollars have been contributed to the plan. But if those tax rates are expected to be higher, there will be a significant advantage in favor of conversion....
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Oct
11
Should Retired Employees Stay in Your Retirement Plan for Employees?
Employees who stay in employer retirement plans long after they retire do both the plan and themselves a number of favors. A recent Vanguard study found that only about one-fifth of retired employees along with their assets tend to remain in employer plans five years after retirement date. There could be multiple reasons for this. Perhaps they need the money to make a down payment on a retirement home—or to pay the mortgage on the home they currently have. Most people who take the funds out of their employer’s plan roll them over to another qualified plan. People often want to complete the breakaway from their former careers by moving their retirement money away from their former employers or from the broad spectrum of their former...
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Oct
11
Tips For Setting Up Retirement Plans for Your Employees
posted by TOM FROEHLICH, CIMC®, CIMA®in RETAINING KEY EMPLOYEES Thinking about setting up retirement plans for your employees? Here are some tips on matching your new provider to your company's culture. With so many retirement plan options available today, it's hard to sort through the basics much less fine tune your plan to fit your company's culture. The basics are a good place to start, though, and sifting through provider options intelligently will lead you to a good match. Developing a due diligence criteria list is a good first step. Experience: It's good to choose a sponsor who's been around awhile and who has the breadth of services you need. You'll want a sponsor who can offer you the type of plan and the size of plan that...
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Oct
11
“Best Practices” For Your Firm’s NQ Deferred Compensation Plan
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES  How many times do you wish for the good old days?  Do you wish for simpler times?  I think we all do, especially if we are past 45 years of age.  Well, did you know in the early days of nonqualified deferred compensation plans (NDCP) plan administration and asset management were pretty straightforward? What I mean is, typically, participants in the plan would defer a set amount of salary or bonus and the CFO would keep a simple spreadsheet of the amounts owed to the participant. The CFO would credit the participant’s account periodically with a fixed interest rate. Often the plan was...
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Oct
11
Warning: 401(k) Safe Harbor Plan May Cause Shell-Shock!
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES Are you in this situation?  You have 401(k) testing issues and are considering other options for your highly compensated execs. So, now you are in the process of evaluating a Safe Harbor plan—correct?  Wait…here are 5 things aboutSafeHarborplans that you need to think about before making a decision: 1. Lack of flexibility – Some plan features can be limiting to the employer:  (a) Contribution limitations of $16,500 (2010 limit)  (b) The requirement that participants are immediately vested (c) Not being able to choose select participants (must be available to all employees). 2. Paying...
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Oct
11
Will Your Deferred Comp Program Affect Your Execs SS Benefits?
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES This is a question my business owner clients (as well as my individual clients) always ask when we talk about Non-Qualified Deferred Compensation programs. I believe the rules can be confusing (depending on who you consultant with), so let me begin by saying, “yes, based on age, Social Security retirement benefits may be reduced if  ‘earned income’ exceeds certain limits. This is important for employers, as well as employees, to know. Let me explain: The Social Security Administration says that ‘earned income’ is different from the familiar “Wages, Tips and Other Compensation” on form W-2. It...
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Oct
11
Are You Doing a “Double-Take?”
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES  Well, if you’re not, you should be!  What I mean, of course, are you taking a second look at your firm’s defined contribution plans? Just ask yourself one simple question: Is your current plan taking you where you want to go? Is it achieving your objectives?  This includes voluntary deferred compensation plans, nonqualified excess plans and the 401(k) “look-alikes.”  You see, in recent years, defined contribution plans have evolved. They now include many enhancements to the plan design, the administrative services, as well as the financing options. These are just a few of the things that are...
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Oct
11
“INVEST” IN YOUR KEY EMPLOYEES—You can’t afford NOT to!!
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES The way I see it, in order for employers to meet their business goals, they should take a serious look at the various benefits they can provide key employees. It is crucial that your contributions in certain compensation plans are viewed as an investment, NOT as a cost or an expense. After all, they are your most important asset, right? Recently, I’ve had numerous discussions with my business owner clients about retaining and motivating their key employees—the senior managers, top executives, as well as their sales staff.  We’ve discussed the potential problems that the loss of experience and...
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Oct
11
NQDC Plans: Your Questions Answered on Funding Distributions
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES Over the past few months, I have posted many blogs on the subject of Non Qualified Deferred Compensation plans. I’ve covered a lot of ground and I hope I’ve answered many of your questions. I have been asked by a few of my visitors to my blog who are CFOs if I could explain in basic detail about NQDC plans, and answer a few more of their questions. I am very happy to do this for those of you needing more explanation, and for those of you who may simply need a “refresher course.” I’ll start with a few definitions and try not to use too much jargon: Nonqualified Deferred Compensation plans are...
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Oct
11
Should You Terminate or Freeze Your Defined Benefit Plan?
posted by TOM FROEHLICH, CIMC®, CIMA® in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES You are looking to control your firm's expenses, right?  Of course, most business owners are, especially in light of our current economic environment. If you are like many of these owners, you may be looking at your company's pension cost and considering either freezing or terminating your defined benefit pension plans. So, let's talk about this…  If you freeze the plan, it continues but your employees accrue no more benefits. Also if your plan is under-funded at the time you freeze it, you may need to make more contributions. On the other hand, if you terminate your plan, all of the accrued...
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Oct
11
Who Has Questions About Non-Qualified Deferred Compensation Plans?
posted by TOM FROEHLICH, CIMC®, CIMA® in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES  I’ve written several blog posts lately about Non Qualified Deferred Compensation Plans, and over the past month or so I’ve received a number of questions about them. So, I decided to publish a list of the questions— with the answers— in case you have been wondering about some of these issues.  Just to re-cap, you already know that your firm’s NQ deferred comp plan will pay your executives future benefits when they retire or otherwise leave your firm. The plan will also pay upon disability, death, change of control at the firm, and other events that you negotiate. Most importantly, you know...
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Oct
11
Is Your Firm Using Its Deferred Compensation Plan Effectively?
posted by TOM FROEHLICH, CIMC®, CIMA® in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES Since you've been reading my blogs, you've learned that I enjoy working with business owners and discussing nonqualified deferred compensation plans with them.  I believe they are extremely beneficial to firms in terms of helping them recruit, retain and reward their key employees and staff members. The success of your business really depends on these individuals. As a business owner, you may already understand that some qualified plans have certain limitations, and can cause a "retirement gap" for your highly compensated employees. I've talked a little bit about that in previous blogs. A...
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Oct
11
Are You Looking for New Ways to Defer Executive Compensation?
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION I've been discussing deferred executive compensation in several of my articles lately—specifically, non-qualified executive compensation plans. But today, I would like to tell you about the Rabbi Trust which has been gaining popularity among some of my clients, and let me explain why: As business owners know, benefits under nonqualified plans are paid out of the general assets of the business when they become due. And—these plans are unfunded, a very important point to understand. Why? Because over the past few years we've seen an increasing incidence of overleveraged companies not having the necessary monies available to pay participant balances. So what does...
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Oct
11
Yet another reason to love your NQDC plan
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION IRS audits are increasing in frequency on those earning between $500,000 and $1 million annually. That’s a good reason to love your NQDC plan. Just as deferring income keeps their earnings below the higher tax thresholds, it also keeps employees’ earnings below the $500,000 target level for the current audit focus. Another red flag for the IRS is a fluctuation in income. This can be caused by varying levels of deferred compensation elected year over year by participating executives. There’s certainly nothing wrong with varying contribution levels. But it’s one more reason that making decisions about NQDC plan participation in line with an overall financial plan...
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Oct
11
The scoop on Section 409A…what you don’t know can hurt you and your employees!
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION What exactly is Section 409A, anyway, and what does it have to do with my NQDC plan? That’s a question that can easily be asked by business owners who already have NQDC plans as well as those who are just contemplating setting one up. Basically, Section 409A is the IRS code that governs your plan. It lays out all the restrictions on deferral elections and structure of your plan as well as rules for plan distributions. In short, if your plan is not compliant, you invite an audit as well as possible penalties if your plan is found lacking. Section 409A was added to the tax code in 2004 when Congress passed the American Jobs Creation Act. The code applies to...
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Oct
11
NQDC’s are fast becoming key employees’ new BFF for retirement income
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION The economy is coming back – slowly, but surely. And that’s making company NQDC plans more and more popular. A study published in June 2014 by the Principal Financial Group showed that 91% of plan participants value them as a significant tool to help them reach their retirement goals. Twenty-six percent are counting on their NQDC plan to provide their retirement income. And 37% have decided to increase their deferral amount next year. The study began in 2008 so it was designed to track NQDC participant activity for a good while. It measured plan experience of both sponsors and participants and their satisfaction with the plans. It also identified gaps in...
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Oct
11
Pros and Cons of Nonqualified Deferred Compensation Plans
posted by TOM FROEHLICH, CIMC®, CIMA®in DEFERRED COMPENSATION,EXECUTIVE RETIREMENT, NON-QUALIFIED DEFERRED COMPENSATION, RETAINING KEY EMPLOYEES, UNCATEGORIZED For those who have been following my blog posts on a regular basis, I hope I have given you the information you need to make important decisions about Non Qualified Deferred Compensation plans for your highly compensated executives. I recently received a few emails from owners of companies who asked me to list— in a simple format—just the pros and cons of these plans.  So, I have prepared a list that will help those of you who need this as talking points for your staff, your executives and your business partners:  Advantages of Nonqualified Deferred Compensation Plans...
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Oct
11
5 Non-qualified Deferred Compensation Plan Tips for Participants – Part 1
posted by TOM FROEHLICH, CIMC®, CIMA®in NON-QUALIFIED DEFERRED COMPENSATION This article is part 1 of a 2 part series. Do you want to become a more informed participant in your company's non-qualified deferred compensation (NQDC) plan? The great part about this education and these tips is that they focus on financial planningconcepts that will help you make decisions as you move forward with your plan. (Please notice that there are some caveats included in the tips about NQDC because pros and cons are all part of education.) 5 Tips About Your Non-qualified Deferred Compensation Plan  1. Maximize Your 401(k) Don't even think about participating in your nonqualified deferred compensation plan for the coming year unless you also...
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Oct
11
NQDC Plans Benefit from Flexibility
posted by TOM FROEHLICH, CIMC®, CIMA® in NON-QUALIFIED DEFERRED COMPENSATION Non Qualified Deferred Compensation (NQDC) plans are usually thought of as retirement income planning vehicles. But the flexibility of the plans makes them potentially much more than that. Depending on how your plan is set up, it can allow your employees to create target distribution dates that match major events in their lives or the lives of their family members. This means that employees can take a distribution even while they are still working for it. It’s called an in-service distribution. Other names for it include specified-date distribution and fixed-date distribution. Whatever you call it, it extends the flexibility of your plan to function like other...
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