COMMON USES
1. In Lieu Of
A Formal Pension Plan
Where the cost of a qualified plan is not justified due to corporate circumstances
(i.e., participation would involve a large number of non-executives), but
providing retirement benefits to certain key executives is still desirable.
The plan can be discriminatory and the employer has total discretion in choosing
its key employees.
2. Supplementing A Qualified Pension/Profit Sharing Plan
Because the amount of retirement income highly paid executives can
derive from such plans are restricted due to the severe limits imposed
by qualified plan rules, non-qualified plans can be used to make
up the difference. (Restrictions on individual compensation must
be observed where they are prescribed.)
3. Assistance In The Recruitment Of Key People
A greater fringe benefit program is possible for a new employee through
a supplemental executive retirement plan, and, in many cases, can
provide more than what they left behind.
4. Retaining Valuable Key Personnel
The loss of substantial supplemental executive retirement benefits
can deter a valuable key employee (i.e., senior executive, engineer,
project supervisor, etc.) from leaving their current employer.
5. In Lieu of Stock or An Ownership Interest
Key employees generally prefer supplemental executive retirement benefits
over minority stock interest in close corporation settings when little
or no dividends are paid, or if the owners wish to restrict the ownership
to family members.
6. Retain Key Employees To Run Business For The Family
Where a business owner desires to see his or her family continue to
own the business, a supplemental executive retirement plan can hold
the key people and keep the business alive until minor or inexperienced
children can take over.
7. Contractors Subject to Federal Acquisition Regulations (FAR)
Under FAR, a contractor may build into its overhead, the cost of a
deferred compensation program, thus obtaining cost recovery (subject
to the provision under 48 CFR).