Using Non-Qualified Deferred Compensation to Reload the Retirement Account
As the economic recovery presses on, executives seek benefits enabling them to recover from the substantial losses they sustained over the past two years.
American Benefit Corporation's James W. Herlihy has published a new article on non-qualified deferred compensation. Restoration of lost benefits, even for those hardest hit, is possible with little corporate cost by establishing a deferred compensation plan.
From September 2008 to March 2009, the DJIA fell from 14,000 to 6,000 significantly decreasing the accumulated value of most retirement plans - a 57% decrease in value. Since that time the DJIA has risen to over 10,000, regaining approximately 50% of its lost value. While this decrease in retirement account value is meaningful to all, it is particularly meaningful and disturbing to executives who may be approaching retirement and don't have the time horizon to wait for their funds to recover.
A non-qualified deferred compensation plan can help these executives to defer significant amounts of pre-tax income to reestablish his/her retirement account value to pre-September 2008 values before the scheduled retirement date.
Consider, for example, a hypothetical executive age 58 that had $2 million in retirement account value, and now has $1.2 million and would like to rebuild the account value to $2 million. With retirement projected at age 63, he/she could defer pre-tax income of $133,884 for 5 years, assuming 6% rate of return to accumulate the deficient $800,000 at age 63. Assuming a 40% tax bracket this will be an $80,330 reduction in net pay. If 8% is earned, $126,264 will be the required deferral for 5 years and a $75,758 reduction in net pay.
This is a simple illustration, not representative of any particular investment product, exemplifying how non-qualified deferred compensation can be used as a tool to rebuild executive retirement benefits. There are many variations - contact us to discuss one appropriate for your situation.
About Us - At American Benefit Corporation, we design, fund and manage executive non-qualified benefit plans for highly compensated corporate executives who wish to reduce current income taxes and form personal capital on a tax efficient basis. Established more than 30 years ago, we serve the unique needs of executives in numerous corporations with their personal capital formation objectives.
This material is intended for informational purposes only and is not intended to replace the advice of a qualified tax advisor.
Investments in securities involve risks, including the possible loss of principal. When redeemed, shares may be worth more or less than their original value.