Executive benefits plans

If attracting and retaining executive talent is important to a successful company, then crafting a compensation package that includes specialized executive benefits is key to remaining competitive. Executive benefits plans provide additional compensation and protections tailored to the needs of key decision-makers and highly compensated employees. This article can show your organization how to create a benefits plan that supports the leadership it needs to be successful by explaining:

• Why executive benefit plans are needed

• Who is eligible for these plans

• Examples of benefits designed to meet key employees’ needs

Key employees have unique benefits needs

Companies use executive benefits to give them an edge in the recruitment process, as well as to reward and retain current key employees. These packages typically contain benefits that address executive-level needs for life insurance, disability protection, and retirement savings, among other things.

Many will be surprised to learn that executives who rely only on standard group benefits are likely to be underinsured, and may actually have insufficient savings for their needs. This is due (in part) to their level of compensation, which typically makes them ineligible or unable to participate fully in many or most qualified retirement plans. That’s why non-qualified deferred compensation plans (or NQDC plans) are an example of an executive benefit for high earners, who make too much money to depend on the relatively low contribution limits of a company 401(k) for their retirement.

Fortunately, executive benefits can often be customized to the individual employee and their financial situation and planning strategy. According to the Goldman Sachs 2023 Executive Benefits Survey, the most common executive benefits cover physical and financial wellness, with perquisites such as financial counseling services or executive medical exams topping the list at 73% and 66% for senior executives, respectively.¹

Eligibility for executive benefits plans

Executive benefits plans are typically offered to select senior executives and highly compensated individuals and can be flexibly structured to complement the business’s HR strategy as well as the executive’s goals. In accordance with U.S. Department of Labor federal guidelines, certain executive retirement options are commonly exempt from ERISA rules on funding, participation, and vesting, so they can be offered to a select group of employees without triggering a violation.² You might design executive benefits plans for employees with titles such as:

• Chief executive officer

• Chief financial officer

• President

• Senior vice president

• Treasurer

• General counsel

What are some examples of executive benefits?

Executives tend to be highly compensated key employees, and competitive benefits packages recognize and support their unique needs. Executive benefits typically fall into these main categories:

1. Life and disability insurance

An executive bonus plan, also known as a Section 162 or REBA (restricted endorsement bonus arrangement) plan, is a strategy used by businesses to attract, reward, and retain key employees using life insurance as a benefit. Here's how it typically works:

The key employee takes out a life insurance policy — usually a permanent policy like whole life insurance that provides a death benefit and builds tax-deferred cash value over time — and the employer covers the cost of the policy by giving them a bonus large enough to pay the insurance premiums.³ The employer gets to write off the expense, and the employee owns the policy but is only responsible for the tax on the bonus.

When the employee reaches retirement age (or earlier, depending on the terms of the bonus plan and policy) they can access the cash value of the policy to help supplement retirement income.⁴ Or, if the employee dies, their beneficiaries get a income tax-free death benefit from the policy. Variable universal life insurance can also be used, offers a risk-reward combo that provides flexibility and the potential for market growth, with the understanding that market losses can affect policy value.⁵

There are also other ways to provide additional coverage for executives, with benefits to both employee and employer. For instance, executive term life insurance with higher coverage amounts could replace the group coverage typically offered to employees. Split-dollar life insurance describes a contract between executive and employer that divides ownership of a permanent life insurance policy as well as premium payments and policy payouts. These plans are highly flexible, and can provide tax advantages that make substantial coverage more affordable for the executive. Key person life insurance is a type of policy that is owned by the company, which (with the consent of the key employee) would receive benefits in the event of that employee’s death. The key person described in the policy is typically someone who is critical to the business’s success, whether they’re the CEO, the face of the organization, or they bring key clients to the company.

Many executive benefits plans also include disability insurance, which provides income replacement benefits to the employee in case of covered illness, accident or disability. A supplemental policy can exceed the cap on coverage common to group disability plans. According to the Goldman Sachs report, 30% of companies surveyed provide executive disability insurance to their CEOs and senior executives.¹

2. Retirement benefits

Another major component of most executive benefits is retirement planning. Two main options are popular: Supplemental Executive Retirement Plans (SERPs), or Salary Deferral Plans.

Supplemental retirement plans are funded by the company and can be used to enhance benefits for executives, such as additional credit for service, a more generous formula for calculating compensation, or defined contributions that can reflect the employee’s performance against a benchmark.

Salary Deferral plans are a way for executives to defer a portion of their compensation until a later date, such as retirement. Unlike qualified retirement plans, these Non-Qualified Deferred Compensation or NQDC plans have no contribution limits. They also offer more flexibility because they can be structured to schedule distributions before retirement, for example, to help pay for a child’s college tuition.

Other executive perks

Although the focus of many executive benefits plans is frequently on additional insurance options or retirement benefits, consider including other perks that maintain or enhance your advantage in recruitment and retention. These may include:

• Car allowance: A company car, chauffeur service, or use of the company plane is part of an executive benefits package for 10% to almost 50% of CEOS and senior executives, according to Goldman Sachs1. The average annual allowance for companies offering a car allowance is $13,836.

• Relocation assistance: Companies casting a wide search net to find the best job candidates for a key hire should consider offering generous relocation benefits as part of their recruitment strategy.

• Charitable donation accounts: About 20% of the companies surveyed by Goldman Sachs provide charitable-giving matches as part of their executive benefits.¹