2016- HCE_total rewards

GBS/NFP-CD(174579)(exp022017)

Highly Compensated Executives & Total RewardsJACK FISCHER| 2016

ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™

• Key Person Benefits do not often get benchmarked as a separate line item, it is typically included on the corporate balance sheet as executive life insurance. In our daily practice, we are seeing companies of all sizes (including your size) utilizing Key Person Insurance

• Some publicly traded and private companies that have utilized Executive Carve-Outs are:

What is Benchmarking

© 2016 GALLAGHER BENEFIT SERVICES, INC. 2


Issues for Highly Compensated Executives

• Executive Benefit Programs have become a vital tool in responding to constantly revised tax law

– Changing personal Income Tax Rates: Ordinary Income, Capital Gains, Estate Taxation

– Statutory limitations: Qualified retirement plans & Social Security

• Individual Long Term Disability benefits on average will only replace 20-30% of most highly compensated employees*

• Sufficient amounts of Life Insurance coverage may not be readily available to meet the needs of the highly compensated employee

• Highly compensated employees (HCE) receive a smaller percentage of their final compensation than would be the case for a lower paid employee

*Source: Employer Perspectives on Disability Benefits. The American College and Mass Mutual Jan 2013



• Executive Life– HCE’s should have 5 to 10 times annual income in Life insurance

coverage– Supplemental term has historically filled a portion of this need when

available

• Individual Disability income for HCE’s– Group plan designed to meet the needs of most employees not HCE’s– Currently there are more available plan designs (what is a Situs?)

• Long Term Care– Marketplace continues to evolve with availability of alternative plan

design and flexibility– Very favorable tax treatment for both employer and employee– Can discriminate in favor of highly compensated employees

Executive Life, Disability & LTC



Nonqualified Deferred Compensation (§409A )

Codified the established best practices relative to Nonqualified Deferred Compensation (NQDC) plans. A NQDC plan is any plan that provides for the deferral of compensation from one tax year to a later tax year.

• General categories of NQDC plans are: – Account balance (defined contribution) plans– Non-account balance (defined benefit) plans– Separation pay arrangements– Other plans (e.g., equity-based compensation)

• Plans excluded from §409A:– Qualified retirement plans (e.g., 401(k) plans or tax qualified pension

plans), tax-deferred annuities under section 403(b), simplified employee pension (SEP) plans, and section 501(c)(18) trusts;

– Certain welfare benefit plans, including bona fide vacation leave, sick leave, compensatory time, disability pay, and death benefit plans; and,

– Section 457(b) plans.


GBS/NFP-CD(174579)(exp022017)

Thank You Jack Fischer| Area Sr. VP/Managing Director, Executive Benefits

Gallagher Benefit Services, Inc.312.803.6293 Main312.803.6372 Fax

GBS/NFP-CD(174579)(exp022017)ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™

This document attempts to provide only broad general guidelines and information that can be used to help you shape your employee retirement benefit plan. All information and opinions will be for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The type of securities mentioned may not be suitable for everyone. Each investor needs to review a security transaction for his or her own particular situation. This information does not assess the suitability, or give any assurance about the potential value, of any particular investment.

Gallagher Benefit Services, Inc., a subsidiary of Arthur J. Gallagher & Co., is a non-investment firm that provides employee benefit and retirement plan consulting services to employers. Securities and Investment Advisory Services may be offered through NFP Advisor Services, LLC, Member FINRA/SIPC. Not all individuals of Gallagher are registered to offer securities or investment advisory services through NFP Advisor Services, LLC. NFP Advisor Services, LLC is not affiliated with Arthur J. Gallagher & Co. or Gallagher Benefit Services, Inc. Neither NFP Advisor Services, LLC, Arthur J. Gallagher & Co., their affiliates or representatives provide accounting, legal or tax advice.


Documents

2016- HCE_total rewards