Challenging Times for Traditional Supplemental Retirement Plans

Qualified plans such as §401(k) and pension programs alone may not provide adequate retirement income for many highly compensated employees.  Employers have frequently offered nonqualified deferred compensation plans to help executives address these retirement income shortfalls. In the past, participants valued the benefits offered by these programs, and sponsors viewed these plans as important tools to attract, retain, and reward key employees.

However, many executives are increasingly unwilling to participate in programs that leave their retirement benefits subject to their employer's creditors in the event of bankruptcy.  In addition, §409A regulations have greatly increased the cost and complexity of administering deferred compensation plans.  These rules also expose participants to severe financial penalties if a plan does not comply with §409A.

Highly compensated employees of not-for-profit organizations face additional retirement planning challenges due to limitations imposed by §457 regulations.  In particular, executives face immediate taxation if their benefits are not subject to a substantial risk of forfeiture.  Proposed changes to §457 rules will eliminate some of the most popular design options used by non-profit entities to avoid these adverse tax consequences.

All of these factors have made traditional deferred compensation plans less attractive than in the past.  At the same time, inflation and the likelihood of higher income tax rates in the future have only increased the need for tax-advantaged programs to help executives address their retirement income needs.

The challenges are substantial; BeneFacio, Inc. has the solutions.