June 05, 2018
The New Tax Law: Why it might make deferred comp programs even more attractive
The following article, written by Jeff Roberts, Manager, ADP Executive Deferred Compensation, was published by PlanAdviser and reprinted here with permission from the author. FOR A WHILE LAST YEAR, the tax bill moving through Congress included changes that would have made it hard to continue offering nonqualified deferred compensation (NQDC) plans to highly paid executives. By the time the Tax Cuts and Jobs Act was signed by President Trump, though, it included changes that may actually make deferred compensation programs more attractive for certain plan participants and their employers. To find out why, PLANADVISER spoke with Jeff Roberts, national new business manager for ADP Executive Deferred Compensation, which administers over 140 nonqualified plans with $8.5 billion in plan liabilities across 21,000 executive accounts. PLANADVISER: What are the tax law’s most significant changes around executive pay and nonqualified deferred compensation programs? Jeff Roberts: The most substantive change concerns Section 162(m) of the federal tax code, which has long precluded companies from taking a tax deduction for compensation above $1 million to a ‘covered employee’ in any one year, albeit with a few significant loopholes. In the past, covered employees were defined as the CEO plus the company’s next three highest-paid workers, excluding
April 19, 2018
Fulcrum Partners Releases White Paper on Pre-Tax Income Deferral
Important Insights on Pre-Tax Income Deferral PONTE VEDRA BEACH, FL — (April 19, 2018) Five years have passed since the executive benefits advisors at Fulcrum Partners LLC released Advantages to Pre-Tax Deferral of Income in an Uncertain Tax Environment, an in-depth report on the effectiveness of deferring compensation until retirement for the purpose of accumulating wealth and reducing taxes. While much has changed in the U.S. tax code, and on the national and global political and economic fronts, uncertainties of the tax environment remain. Fulcrum Partners Managing Directors Steve Broadbent and Chris Nyland have revisited the topic and are publishing a revised study that reflects today’s economic and tax considerations. The company is making the report available to the public as a downloadable PDF. As Steve Broadbent, Fulcrum Partners Atlanta, explained, “It’s mid-April, and taxes and strategies to defer taxes are fresh in everyone’s mind right now. Many working Americans have wondered whether the practice of deferring compensation is still sound, in view of changes to the tax code and the economy. Fulcrum Partners felt it was important to provide our marketplace with insights to help tax payers evaluate the practice of deferred compensation as part of long-term financial planning.
November 20, 2017
Your Retirement is Not Yet Safe from Tax Reform
Big Questions Remain about Your Retirement Security and Tax Reform Millions of working or recently retired Americans who have chosen to defer income for their retirement could take a serious hit to their financial security from the proposed tax reform bill, known as the Tax Cut and Jobs Act. As initially presented, proposed tax changes would have dismantled nonqualified deferred compensation. In so doing, the changes would have placed a debilitating financial burden on many workers and soon-to-be retirees. The House of Representatives approved a tax reform bill, in a vote of 227 to 205, and the Senate Finance Committee both approved its version of tax reform on Thursday, November 15, that retains deferred compensation. But the matter is far from finalized. Speak Out About Tax Reform Given that you work a lifetime striving for a secure and comfortable retirement, you’ll want to stay on top of this issue as it continues to be debated by the full Senate. If you are concerned about the security of your retirement, contact your U.S. Senators. Express your disapproval of changes to deferred compensation that make it more difficult for you to save for retirement while concurrently making it harder for American businesses
April 20, 2017
Companies Have Many Reasons to Use Deferred or Future Compensation
Consider corporate objectives. Future compensation can: 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. Retention is a Reflection 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. This reveals loyalty from employer to employee and from employee to employer.
September 28, 2016
Why Does Executive Benefit Benchmarking and Strategic Planning Matter So Very Much?
Why Does Executive Benefit Benchmarking and Strategic Planning Matter So Very Much? On the surface, two plans may appear equal. Yet, when skillful executive benefits professionals analyze the plans, disparities become glaringly obvious. Cost to the company, reward to the executive, flexibility of benefits, and tax ramifications can vary drastically. Plan sponsors typically work diligently to decrease the costs of qualified retirement plans, healthcare plans, and other welfare benefit offerings. But do you or your company apply the same level of scrutiny to your executive benefits strategies? Do you know how your plans measure up to your peer company benchmarks? What would improving earnings per share do to your stock price? Are there pennies hidden in the design, cost, or efficiency of your executive benefit plans? The Power of Looking Behind the Curtain When a company maximizes the effectiveness of its nonqualified deferred compensation strategy, it improves continuity, reduces vulnerability to talent loss, and increases earnings. Executives are positioned to achieve their personal financial goals and a meaningful partnership is built between key talent and the plan sponsor. By choosing Fulcrum Partners to review your existing benefit plan, you incur zero cost for our services and we will not tie
September 22, 2016
Taxes at the Optimal Time. Your Need for a Nonqualified Deferred Compensation Plan
Taxes … at the Optimal Time YOUR NEED FOR A NONQUALIFIED DEFERRED COMPENSATION PLAN A nonqualified deferred compensation plan, NQDC, can provide you flexibility and control in planning when you receive compensation payouts. Income taxes on the payments received are not paid until the year you receive your money. By choosing to defer distributions while you are working (and your tax rate is potentially higher), you can schedule for distribution during your retirement, when your effective tax rate may be lower. You can coordinate your NQDC distributions with your social security distributions or other pre-tax retirement plans such as your 401(k) plan. You may be interested in funding your retirement with NQDC distributions first, and then receiving qualified plan distributions later. As an eligible executive with variable income components, you may use your NQDC plan to choose when you take distributions, including the option to take installments. Additionally, you have the flexibility to delay distributions beyond the originally scheduled timing. Learn how NQDC can help you build wealth now and for the future. Contact Fulcrum Partners. www.fulcrumpartnersllc.com/team/
September 15, 2016
Recruit. Retain. Reward … Retire.
Recruit. Retain. Reward … Retire. NQDC plans can provide employers critical leverage to recruit, retain, reward through to retirement, the key talent that enables the organization to achieve its goals, maintain stability, and satisfy board members and stakeholders. Inspire/influence the behavior of key performers by customizing contribution and vesting schedules to use as performance rewards for executives. A company’s NQDC plans can be customized to serve many types of organization goals. Discretionary employer contributions can help fulfil the unique needs of an organization. Plan for your company’s future, using NQDC to create phantom shares and provide an ownership experience or to create opportunities for key executives to be potential future owners.” OWNERSHIP EXPERIENCE: Employers can customize contribution and vesting schedules measured by phantom stock values, making it possible for the executive to share both in increases and decreases in the valuation of the company, creating an ownership experience without any actual dilution of equity rights. INSIDER TRANSITION: A closely held corporation might fund an NQDC plan account for current executives who are considered to be possible future owners, setting an account to vest and distribute on a “change in control” of the company. This type of structure incentives and rewards key
September 13, 2016
Deferred Comp: Tax Strategy
Deferred Comp: Tax Strategy Some mostly welcome clarification on taxation of deferred comp George G. Jones JD, LL.M, and Mark A. Luscombe JD, LL.M, CPA, authored an article on tax code changes regarding issues of deferred comp. The article was published on the website AccountingToday.com. Jones is managing editor in CCH’s Washington office and Luscombe is principal analyst, at Wolters Kluwer Tax & Accounting. In their article, Jones and Luscombe looked at the 409A proposed regulations and modifications, observing that the new proposed regulations and changes to existing modifications not only provided some welcome clarifications “… but the guidance issued generally comes down in favor of taxpayers in trying to avoid income inclusion from these situations.” To read their informative article in full, click on Tax Strategy. You may also be interested in a white paper published by Fulcrum Partners LLC that looks at the proposed 409A tax code modifications and new rules, as well as changes and new rules regarding tax code 457. To view this white paper, click here: Report from Fulcrum Partners 409A and 457 Updates Fulcrum Partners LLC. Related Updates from Fulcrum Partners on Deferred Comp and Issues of 409A How Will 409A or 457 Changes Affect Part-Year Compensation? Section 409A Tax Code
September 06, 2016
Your Need for a Nonqualified Deferred Compensation Plan
YOUR NEED FOR A NONQUALIFIED DEFERRED COMPENSATION PLAN Bridging the Gap … A nonqualified deferred compensation plan, NQDC, can serve an important function in helping to fill the significant gap between the combined amount of your social security retirement benefits plus your qualified retirement benefits and the amount of retirement savings you will need in order to replace your current income. Qualified retirement plans, IRAs, and 403(b) plans have limits on contribution amounts. In contrast, NQDC has inherent flexibility and affords greater opportunities, including 401(k) “restoration” that can help you bridge the replacement income gap. Forty percent of highly-compensated executives admit they are concerned about the gap between their current income and their projected retirement income.” A Nonqualified Deferred Compensation Plan: Permits you to defer compensation in excess of qualified plan limits on a pre-tax basis. Has flexible distribution options that can allow more choices in tax planning, including permitting accessibility before you reach the age of 59½ years. Restores contributions limited by IRS restrictions on qualified retirement plans. Allows you to have an individualized investment strategy. Is not subject to contribution/ participation limits. Allows organizations to make discretionary contributions to enhance employee retention, including incentive-based contributions. Has simplified government disclosure
August 26, 2016
More on How Section 409A Rules Impact Nonqualified Deferred Compensation Plans
The following update was prepared by IslerDare PC and is shared here with their permission as Fulcrum Partners continues to provide education and insight on the changes and clarifications to Section 409A Rules and Section 457 Rules. You may download this report on the Resources Page (New Section 409A Rules Impact Nonqualified Deferred Compensation Plans) of the Fulcrum Partners website. You may also view or download the whitepaper by Fulcrum Partners, “Report from Fulcrum Partners 409A and 457 Updates” on the Resources page of this website. New Section 409A Rules Impact Nonqualified Deferred Compensation Plans (NQDC) Executive Summary On June 21, 2016, the Treasury Department and IRS proposed clarifying changes to final and proposed regulations under Section 409A of the Internal Revenue Code (“Section 409A”), which impact a wide range of nonqualified deferred compensation arrangements. Taxpayers may rely on the proposed rules immediately, as the final regulations are not expected to significantly differ from the proposed regulations. What You Should Do Review your existing nonqualified deferred compensation arrangements to determine whether any changes are needed in light of the new guidance. Work with your consultants and outside legal counsel to determine how the guidance may impact proposed compensation arrangements that are being considered for your organization.