CG Wealth Solutions Group, LLC

In today’s competitive job market, hiring the best employees is only half the battle. Retaining them is just as crucial. The most valuable assets of your business are your top-performing employees and providing them with additional benefits can help secure their loyalty. One approach is to offer supplemental retirement savings plans, tailored to reward and retain key talent.

Let’s explore how nonqualified deferred compensation plans and executive bonus arrangements can help your business retain its best employees.

What are nonqualified deferred compensation plans?

An NQDC plan allows key employees to set aside income above the limits of qualified retirement plans, like a 401(k). These plans are informally funded. This means that while the employer sets aside assets to cover future benefit liabilities, these assets are not legally separated from the employer’s general assets. This setup provides a psychological assurance to employees that their benefits will be paid when due, but it does not offer the same legal protections as formally funded plans. NQDC reserves, even though they cannot be specifically earmarked as such, exist as assets on the books of the employer and must be at a substantial risk of forfeiture to the employer’s creditors.

One common method of informal funding is through corporate-owned life insurance and is exempt from stringent nondiscrimination rules. This means you can focus these benefits on select employees without including the entire workforce.

Learn more about life insurance offered by Ameritas.

Types of NQDC plans:

• Traditional deferred compensation: Employees elect to defer a portion of their salary, bonus or future compensation.
• Supplemental Executive Retirement Plan (SERP): Fully funded by the employer, a SERP offers additional retirement income for selected employees.
• 401(k) look-alike plans: These allow key employees to voluntarily defer income on a tax-deferred basis, with optional employer matching contributions.

How NQDC plans work

NQDC plans provide additional retirement benefits for key employees. Here’s how they typically operate:

• Funding: The employer purchases a life insurance policy on the employee’s life. The policy’s cash value grows tax-deferred, providing a funding mechanism for future benefits¹.
• Vesting schedule: A vesting schedule can tie benefits to years of service, incentivizing employee retention.
• Benefits: Upon retirement, the employer uses the life insurance proceeds to pay the agreed-upon benefits to the employee. These payments are tax-deductible for the employer and taxable income for the employee.
• Death benefits: If the employee passes away before retirement, the policy’s death benefit can be paid to their beneficiaries.

Learn more about how executive benefits, like the NQDC plans, work at Ameritas.

Hypothetical example: Retaining a top employee

Rachel Chen and Ethan Kim, founders of Green Acre Group, Inc., faced a challenge in retaining Jordan, a rising star in their real estate company. Despite offering competitive salaries and a qualified retirement plan, they worried other firms might lure him away. Their financial professional suggested an NQDC plan tailored specifically for Jordan, providing additional retirement income and death benefits.

With a life insurance policy as the funding vehicle, Green Acre could offer Jordan extra benefits without extending them to other employees. The plan also tied benefits to Jordan’s continued service, encouraging his loyalty.

Because the plan is not a qualified plan, they can select the employees they wish to offer this benefit without worrying about nondiscrimination rules or mandated maximums on contributions or benefits. In fact, they can customize the arrangement to benefit only Jordan.

They set up a plan in which the company promises to make payouts to Jordan beginning at a specified retirement age. This future income does not reduce Jordan’s current compensation. To avoid current taxation on his deferred income, allowing it and any earnings to grow tax-free, Jordan must have only an unsecured promise to receive these benefits in the future.  This ensures that the income is not considered “constructively received,” which would trigger current taxation.

The company purchases a life insurance policy on Jordan’s life to informally fund the arrangement (after giving notice and getting Jordan’s consent). If Jordan dies after payments have begun, the death benefit will be paid to his named beneficiary.

Executive bonus plans: A flexible alternative

Another powerful tool for retaining key employees is an executive bonus plan. This type of arrangement uses life insurance to provide both pre-retirement protection and supplemental retirement income. Unlike NQDC plans, executive bonus plans are simple to set up.

How executive bonus plans work:

1. The employer chooses which employees will participate and determines the benefit amount.
2. The employer pays the life insurance premium, which is reported as taxable income to the employee.
3. The employee can access the policy’s cash value for retirement or other financial needs¹.
4. The employee’s beneficiaries receive the death benefit generally income-tax-free if the employee passes away.

To enhance the benefit, the employer can provide a “double bonus” to cover the taxes on the bonus amount, eliminating out-of-pocket costs for the employee.

Hypothetical example: Securing creative talent

Mark Styles, founder of Alpha Graphics, Inc., credits much of his company’s success to Ava Jones, a creative genius and technical expert.

Mark is fearful that another company might try to lure Ava away. He wants to reward her in a way that encourages her to stay with the company. He already pays Ava a competitive salary and annual bonuses, and she participates fully in the company’s retirement plan.

Mark’s financial professional suggests that he use an executive bonus arrangement. Mark could use tax-deductible funds to provide valuable benefits to Ava, without having to include any other employees.

Mark is on board with the idea and instructs his attorney to create a written agreement. Ava applies for a life insurance policy on her life and names her husband as the beneficiary. Mark pays Ava an additional annual bonus in an amount designed to cover the life insurance premium and the tax Ava will pay on the bonus. (Mark can deduct the cost of this bonus, but it is taxable to Ava as compensation.) And if Mark should ever want to end the agreement, he could simply stop paying the bonus.

The agreement grants Ava delayed access to the policy’s cash value starting at age 50, using tax-free loans or withdrawals¹. This can help provide an important supplement to her retirement income.

Because Mark is concerned with keeping Ava with the company, he also enters into a second agreement with her. If she leaves the company before age 40 (10 years from now), she is required to pay back all bonuses received under the executive bonus arrangement.

Why consider these plans?

Businesses often insure physical assets like buildings and equipment but overlook the need to protect their most critical asset: their people. Losing a key employee can disrupt operations, reduce profitability and create significant costs associated with hiring and training replacements.

Key benefits:

• Selectivity: Unlike qualified plans, NQDC and executive bonus plans can target specific employees.
• Tax advantages: Contributions and premiums are often tax-deductible for the employer.
• Employee loyalty: Tying benefits to tenure or performance strengthens employee retention.
• Simplicity: Executive bonus plans are generally easy to establish and administer.

The labor market is more competitive than ever. Offering enhanced benefits like NQDC or executive bonus plans can set your business apart, making it an employer of choice for top talent.

Next steps

If you’re ready to protect your business by rewarding and retaining your key employees, consider these strategic compensation plans. Consulting with a financial professional can help you design a strategy tailored to your business’s unique needs and goals. With the right plan in place, you’ll not only secure your company’s future but also demonstrate your commitment to the people who make its success possible.

June 14, 2023|5 min read.

Proper insurance for business owners helps safeguard the success of your business tomorrow and in the next generation.

You’ve done a great job making your business a success today. However, your focus on day-to-day operations leaves you little time to focus on hidden business risks. Proper business planning can help answer the following crucial questions about the future of your business.

Will my business survive?

Having the proper insurance for business owners helps answer the question: what is the importance of succession planning in a business? It helps ensure that when the time is right, or if the unexpected happens, you can leave your company on your terms. And your successor is ready, willing and able to continue your business. A buy-sell agreement fully funded with life insurance greatly increases a company’s ongoing survival after an owner’s death, disability or retirement.

In a small business, the owner is not the only stakeholder. Co-owners, employees and clients may be affected when an owner retires, becomes disabled or dies. Knowing what the importance of succession planning in a business is and putting a plan in place lets you know how your business will continue when you’re no longer a part of it.

A buy-sell agreement—a formal agreement that arranges for the purchase of the business when certain events— is often a good strategy to avoid business risks associated with business continuation. A well-thought-out, adequately valued and funded buy-sell agreement can:

• Assure a buyer for your business.
• Assure the business owner’s family receives fair value for the business while reducing the costs and delays of probate.
• Reduce the risk of a proposed assessment from an IRS *
• Spell out the terms of the buyout, which can be funded with life insurance.
• Supply a smooth transition of complete control and ownership.
• Assure business continuity.

* For estate tax purposes, the IRS will usually accept valuation from an arms-length negotiated buy-sell agreement.

Will my best employees stay loyal to me?

Your key employees are one of your most important assets and can be critical to the success of your business. In today’s workforce, it’s not only becoming more and more important to hire the best employees, but it’s also crucial to keep them. Providing employees with an extra benefit to supplement retirement savings can go a long way in rewarding and keeping your top talent.

The total cost of employee turnover for businesses is high. It takes a toll on company profits and organizational performance. As competition for employees intensifies, put a plan in place to keep your best employees and help avoid the business risks associated with employee turnover.

Nonqualified deferred compensation
Informally funded with corporate-owned life insurance, nonqualified deferred compensation (NQDC) plans allow key employees to set aside money over and above qualified retirement plan limits and are not required to meet the stringent qualified plan nondiscrimination rules. In other words, they enable you to supply a retirement plan for yourself and other key employees without including lower-level employees in the plan.

A NQDC plan can supply added benefits for key employees who are making the maximum contribution to a qualified retirement plan, such as a 401(k). Or, if you have no qualified retirement plan in place, a NQDC can supply benefits to a limited group of key employees, including the owner. A vesting schedule may tie benefits to years of service, helping improve employee retention. Life insurance serves as a funding vehicle for the agreement1 through which the cash value grows on a tax deferred basis^2.

Executive bonus plans
An executive bonus plan, also known as a Section 162 bonus plan, is a cash value life insurance policy that you, as the business owner, provide to your key employees. You can either pay premiums directly or give your employee a cash bonus to pay the policy premium themself.

The employee owns the life insurance policy even though it’s funded by you. They name the beneficiary and may access other benefits, such as the cash value and accelerated benefits. The plan has all the same benefits as an individually owned life insurance policy and offers you a way to reward your key employees:

• The plan provides key employees with pre-retirement death benefit coverage to protect the employee’s family.
• The cash value in the policy grows tax deferred and can provide the employee with supplemental retirement income or cash for other future income needs.³
• Life insurance supplies post-retirement death benefits to protect the employee’s estate.

Executive bonus plans are exempt from IRS approval and participation can be limited to selected employees. Additionally, premiums are fully deductible, provided they represent “reasonable” compensation under I.R.C. Section 162.

What if I become disabled and can’t work?

If you suffer a disability and can’t work, you need a way to keep your business afloat. Disability income insurance for business owners can supply the cash to help your business survive if disability occurs.

Disability is unpredictable and can happen to anyone at any age. In fact, according to the Council for Disability Awareness, just over 1-in-4 of today’s 20-year-olds will become disabled before reaching retirement age. Planning for these business risks is crucial:

To your business
If you suffer a disability and can’t work, your revenue-producing abilities are gone, but your business expenses continue. You need a way to meet expenses such as rent, utilities and employee wages to keep your business afloat. Disability income insurance for business owners can supply cash needed to help your business survive.

To you and your family
Personal expenses often go up, not down, during a time of recovery. The last thing you want to do is take added money out of your business. Your financial picture may drastically change if you haven’t planned adequately for a disability. Disability income insurance can support your family if you become too sick or hurt to work.

Learn more about disability insurance protection from Ameritas.

Can I retire when I’m ready?

Many small business owners are so busy growing their businesses that they put off planning for retirement. But losing sight of your retirement goals can be costly. Make sure when you’re answering the question what is the importance of succession planning in a business, that you include a strategy for your own personal financial success, so you’ll be able to retire when you’re ready.

Many business owners have no retirement savings plans in place. Too often, small business owners are over-reliant on the value of their business as their main retirement funding source. Those who rely on the sale of their businesses for retirement income are setting themselves up for potential trouble. The reality is that not all businesses can be sold at a significant profit. Other reasons business owners face the business risks of not being prepared for retirement:

• Just surviving takes priority over saving.
• They think the business will provide for their needs.
• Setting up a company savings account appears daunting.
• They don’t consider retirement.

Consider your options
As a business owner, you do have a wide array of retirement plan options. There are qualified plans available, such as a SEP or SIMPLE IRA. Or, if you’re looking for a plan that you can limit participation to a few key employees and is also simple to administer with minimal costs, you can consider a Nonqualified Deferred Compensation Plan or an Executive Bonus Plan. While these plans can be valuable tools in recruiting and keeping top talent for your business, they can also be powerful by supplying valuable retirement and death benefits.

What will I leave behind?

Few people have more business issues to deal with than a family business owner. Life insurance for business owners can play a part in helping you make sure your business carries on after you’re gone. The death benefit will supply cash to your heirs to:

• Buy the business from your spouse so they’re financially secure.
• Pay estate taxes after both you and your spouse have passed away, without having to liquidate any business assets.
• Treat family members not involved in the business equitably.

Many family-owned businesses do not stay in the family when the initial owner is no longer involved. Again, knowing what the importance of succession planning in a business is will help ensure you and your loved ones get the full value of your business when it comes time to sell.

If you’re like some family business owners, your children may not be interested in going into the family business. If you’re lucky enough to have a key employee interested in continuing the business once you’re no longer able to, the question often becomes affordability. Does your key employee have enough cash to buy your business for a fair price?

A key person buy-sell agreement can supply an answer. The business owner and the key employee enter into an agreement requiring the owner’s estate to sell the business and the key employee to buy the business upon the owner’s death. The key employee buys a life insurance policy on your life in an amount equal to the value of the business and pays the premium. When you die, the key employee can provide your estate with the purchase price from the life insurance proceeds.

Insurance for business owners encompasses a lot of different needs and covers many business risks. It can be a little overwhelming to figure out where to start. Call us today to help you start the business planning process by helping you find business risks and decide which strategies may be most important to implement.

Americans are living in uncertain times. For many people, their lives, jobs and relationships are different. Customer relationships are changing, too. Businesses still provide excellent customer service. But now they are connecting with customers in new ways, especially online. Here are four ways businesses are defining the new normal and focusing on the customer experience.

1. Customer expectationsFor years, businesses have focused on customer service. Excellent customer service is essential. But now, in the new normal, companies also are concerned about customer experiences. They are focusing on all the contacts customers have with their services and products. This includes phone calls, texts, emails, websites, chat functions and voice messages.As your business defines expectations for interacting with customers, share it with employees. Teach them how to predict, meet and exceed customer expectations. The goal is to make every customer contact with your business a positive experience.Emphasize that this new normal is more than just another business trend. It should be part of your long-term strategy to better care for customers.
2. Customer experiencesYour employees are essential to connecting customers with your business. Ask workers to think through every contact customers have with your business. How do you treat customers in every phase of the buying cycle? What are some new ways your business can provide more value at each step of the customer journey? How can employees upgrade a normal experience into something more?Examine your business operations. Do you adjust business hours to fit customer schedules? Do you offer self-service tools to help customers buy products and services? What is the acceptable turnaround time for following up with a customer comment or question? Make sure employees handle every contact the same way, so customers know what to expect.In the new normal, make it your goal to deliver value in every customer experience. Customers will be impressed. It creates customer loyalty and loyal customers are your brand ambassadors. They tell others about their experiences. It’s an excellent competitive business strategy.
3. Customer communicationsIn the new normal, employees need to communicate well. As an employer, here’s your chance to engage employees and enhance their communication skills.Educate employees about your customers and their business needs. Explain why customers use your products. Share market data about your industry and the competition. Employees can use this information to guide their responses to customer questions. For example, what does your company excel at compared to the competition? Armed with this knowledge, employees can transform a normal conversation into a memorable customer experience.To develop new communication skills, for example, teach them how to write emails that connect with customers. Coach them on the questions to ask to uncover each customer need. Give employees tips to guide customer conversations on the phone and in meetings. This training will help employees be more confident in their jobs and enhance their interactions with customers. Workers will be more professional and able to provide the answers customers want.
4. Learning curveChanging work habits and communication styles take time. Be patient and learn together. The new normal is not just about modifying how your company does business. It’s more about helping employees provide exceptional customer experiences and creating long-term business relationships.

Sources:
Forbes
ZDNet CBS
Marketing Week

Over 60% of American employees are working from home since the recent pandemic started. Business experts report that for many employees, this work arrangement could be permanent. And managers know it is essential to keep encouraging and motivating their teams. Research shows happy employees are more productive. One way to maintain employee engagement is to offer remote workers recognition using the right benefits. Here are six ideas.

1. Technology updates With more employees working from home, employers are spending less money on building maintenance, new equipment and supplies. Invest these savings in giving employees technology tools they need to improve their home office. Offer an allowance for faster internet service or upgrades for digital devices, monitors or printers. It will improve productivity, too. However, make sure your employees protect their vision when using digital devices.
2. Workspace tools Employees working from a remote office or coffee shop can get distracted by other people and sounds. Give employees headphones or earbuds to help them block out noise. Or, encourage workers to use online apps to cancel out disruptive sounds. You also could provide money for employees to buy a new desk or chair. Using the right equipment can help employees avoid neck and shoulder pain, and eyestrain. You’ll end up with happy employees who also are more productive.
3. Schedule flexibilityRemote employees often juggle many family responsibilities. Provide flexibility so they can adjust work hours as needed. Some employers also are giving employees more vacation time. Other businesses allow workers unpaid time off to care for family and personal needs. When employees’ needs are met, it’s easier for them to stay focused and productive during work hours.
4. Childcare assistanceMany remote employees have young children at home. Offer financial help with daycare costs, or before and after school care. Also, consider providing age-appropriate busy boxes for kids to use while their parent or parents are working. These thoughtful gestures will help employees be more productive and keep their kids happy, too.
5. Well-being programsEmployees enjoy having health and well-being benefits. Popular benefits include help with finances, mental health and physical fitness needs. Just as popular, workers want more training to improve their work skills and knowledge. Offering these programs helps encourage and reassure employees as they adjust to working from home. Review additional tips to help employees cope with work changes.
6. Rewards and perks Remote workers need regular team meetings to stay connected. These meetings are a good time for employees to share experiences and ideas. During group time, thank employees for their work. Recognize accomplishments with a gift card or special delivery to their home. These rewards encourage employees and remind them that you care. In turn, you will enjoy the benefits of grateful, happy, productive employees.

Sources:
Business.com
Paycom