Executive Deferred Compensation Plans
Current Issues in Plan Design, Funding and Administration
January 2004
Presented by:
William L. MacDonald
Chairman, President & CEO
About This Report
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D&A/Executive Deferred Comp Plans
01.12.04
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Table of Contents
I.
The Need for Additional Deferral Opportunities
II. Design Alternatives
III. Additional Design Features
IV. Benefit Security Issue
V. The Funding Decision
VI. Plan Administration
Section I.
The Need for Additional Deferral Opportunities
The Need for Additional Deferral Opportunities
Why Executives need supplemental savings:
¾ 401(k) contributions limited to $13,000.
¾ Income eligible for qualified plans limited to $205,000.
¾ Reduction of Net income available for investment due to taxes (federal and state income
tax, social security, property etc.).
¾ Procrastination created by lack of income tax shelters available for personal investment.
1
The Need for Additional Deferral Opportunities
Why Employers offer deferral plans:
¾ Provide retirement savings opportunities above qualified plan limits for highly-
compensated employees.
¾ Provide parity between highly paid and other employees.
¾ Enhance ability to attract, retain, and reward top management talent.
¾ Reduce pressure on existing qualified plan vehicles.
¾ Encourage and reward long-term employment.
2
Retirement Income – How much is sufficient?
A 2002 Georgia State University study found that expenditures do not decrease significantly after
retirement, and suggests the following replacement ratios:
If a replacement ratio is to be met, one’s typical sources of retirement income other than social
security are personal savings and private plans, primarily employer pension plans (qualified and
nonqualified).
The Need for Additional Deferral O