Nonqualified Deferred

Compensation Plans

A Tremendous Employer Benefit

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IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the

IRS, we inform you that, unless otherwise expressly indicated, any federal tax advice

contained in this communication, including attachments, is not intended or written to

be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under

the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.

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Skloff Financial Group and National Benefits Group

Over 60 Years of Combined Experience:

– Resolving owners’ and executives’ benefits and retirement needs

– Correcting inefficiencies and shortfalls in current benefits

programs

– Creating management incentives for recruiting and retention of key

employees

– Providing wealth and investment management solutions

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Qualified Plans

– Broad based benefits

– Tax-Advantages

– Strict IRS and ERISA requirements

• Non-Discrimination

• Limits on amounts or levels of benefits

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Nonqualified Plans

– Limited IRS and ERISA requirements• Not subject to non-discrimination rules

• No limits on amounts or levels of benefits

• 409A

– Address Specific Needs• Reverse discrimination

• Retention

• Business and estate planning

• Personal savings

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Qualified Plans (e.g. - Pension, 401(k))

– Security

– Broad Based Benefits

– Tax-Advantages

Nonqualified Plans

– Benefits Parity

– Retention

– Performance

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11.0%$150,000

16.5%$100,000

33.0%$50,000

8.3%$200,000

6.6%$250,000

5.5%$300,000

Max Pre-Tax Deferral PackageSalary

Impact of $16,500 Contribution Limit in 401(k)

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Impact of $16,500 Contribution Limit in 401(k)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

15%

of

Co

mp

ensa

tion

Sample Census, Annual Compensation from $18,000 to $300,000

Limited in savings as % of

compensation - as little as

5.5% at $300,000

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Nonqualified 401(k) Excess– Bypasses qualified plan limitations

– Company can decide eligibility

– Free of most IRS limitations

– Pre-tax contributions

– Tax-deferred growth until distribution or termination

– Pre-59½ distributions without penalty

– Employer Contributions, if any, can have vesting

• Years of Service

• Performance Goals or other criteria

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Phantom Stock– Specific deferred compensation plan

– Alternative to equity based performance plans• Doesn’t dilute stock

• Balance cash and equity payouts

• Annual accounting mitigates large expense charges associated with

equity plans

– Offers private companies the ability to offer equity based

compensation plans• No SEC registration

• Compete against public companies

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Bonused Life Insurance– Current Compensation

• Corporate Immediate Tax Deduction

– Company Can Set Vesting

– Employee Owned• No Risk of Forfeiture

• Off of Corporate Books

• Portable

– Advantages Similar to Roth IRA• Tax Deferred Growth

• Tax Free Benefits

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Advantages of Tax-Favored Retirement Plans

Total 15 Year After-

Tax Income

Annual After-Tax

Income167,364269,136269,136

x15 Yearsx15 Yearsx15 Years

2,510,4534,037,0364,037,036

Personal Savings

(After-Tax and

Taxable)

Bonus Plans

(After-Tax and

Tax-Free)

Deferred Compensation

(Pre-Tax and

Tax-Deferred)

The following example illustrates a 45 year-old who receives $100,000 per year for twenty years, to retirement age 65, and elects to withdraw retirement benefits starting at age 65 over a period of 15 years.

* Assumed annual rate of return of 7.0% gross, 6.52% net of investment management fees.

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Problem - Retail Company with Contributions Limited– Low participation in 401(k)

– Many highly compensated were receiving money back from their

401(k) contributions due to limits imposed by 401(k) testing

– Company wanted to resolve the issue of retirement savings limits the

management and officers had faced• Some employees were limited to annual pre-tax savings of only $2,500

• Company match was limited to $0 for many employees

– Other qualified retirement plan alternatives were not appropriate as they

had to include all employees• Not cost effective

Nonqualified Plans at Work

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Resolution – Nonqualified 401(k) Excess Plan– Company set eligibility to include only employees who earn more than

$100,000 per year

– Eligible employees are able to make pre-tax contributions• Some employees participate up to 100% of compensation, deferring all

income taxes for the year

– Company is able to offer its corporate match in the nonqualified plan

– Plan allows pre-59½ distributions, without penalty• Tuition and education expenses

• Early retirement

Nonqualified Plans at Work

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Aaron Skloff, AIF, CFA, MBA

CEO – Skloff Financial Group

Phone: 908.464.3060