Blog Tag: Executive Benefits
On December 20, 2017, Congress enacted a far-reaching tax reform package called the Tax Cuts and Jobs Act (“the Act”). The good news is that the current law permitting nonqualified deferred compensation plans (NQDCPs), including Code Sections 409A and 457, was preserved. Many of the Act’s provisions affecting individual taxes are not permanent and are scheduled to expire after December 31, 2025, unless a future Congress acts to extend those provisions.
To remain competitive in today’s labor market, employers are constantly looking for avenues to attract, retain and reward key executives. They need options that will not only appeal to their employees, but also align with the company’s strategic plans and long-term goals. Certain benefit plans, such as the 162 Bonus Plan, when structured properly, have the ability to provide advantages to both employers and employees.
Running a successful financial institution in today’s market can be a challenge. Increased regulations, heightened competition and a fluctuating economy make it a tough and complicated job. However, many financial institutions have discovered that using bank-owned life insurance (BOLI) can help make that job a bit easier. BOLI can be used for various business purposes, including to cover the costs of employee benefits and to recover losses associated with the death of a key executive. Under this arrangement, the bank purchases life insurance on a select group of key employees, with the bank named beneficiary on the policies. Originally, BOLI was often combined with a new benefit plan for senior bank executives, but more recently, banks are utilizing BOLI to offset the rising cost of existing employee benefit expenses. So how can banks use BOLI to strengthen their overall business plan? You’re about to find out.
The importance of following the requirements of Internal Revenue Code §409A (409A) was discussed in the Fall 2015 SilverLink magazine article, “Planning by the Rules.” Since that article was published, the Internal Revenue Service (IRS) issued Internal Revenue Code §409A Proposed Regulations, clarifying and modifying the existing and final 409A regulations with regard to deferred compensation. These proposed regulations include 19 technical clarifications, most of which will not affect the core 409A regulations.
Financial and tax planning considerations, including increases in tax rates, are creating a renewed interest in the use of nonqualified deferred compensation plans.
A properly structured nonqualified deferred compensation plan allows a participant to postpone the payment of income tax on the amount deferred until the plan payment occurs, which typically happens at a participant’s separation of service or retirement. However, the exception to tax deferral is the Federal Insurance Contributions Act tax, commonly known as FICA tax. As nonqualified deferred compensation plans grow in popularity, it is important that employers understand FICA taxes and how they might impact these plans.