SUP­PLE­MEN­TAL RE­TIRE­MENT SAV­INGS FOR HEALTH­CARE EX­ECS

Modern Healthcare - - NEWS -

Non- Qual­i­fied Plans

Non- Qual­i­fied De­ferred Com­pen­sa­tion ( NQDC) plans en­able an ex­ec­u­tive to de­fer salary, bonus pay and other types of com­pen­sa­tion into a self- di­rected in­vest­ment trust. Funds in the trust can grow, tax- de­ferred, un­til with­drawn.

Non­qual­i­fied plans are a key com­po­nent of re­tire­ment pack­ages for highly com­pen­sated ex­ec­u­tives. But, says Alexan­dra Taussig, se­nior vice pres­i­dent at Fidelity In­vest­ments, “many peo­ple don’t un­der­stand non­qual­i­fied plans, and they’re not us­ing them. Th­ese plans are a great re­tire­ment ve­hi­cle for hospi­tal ex­ec­u­tives and physi­cians af­ter they’ve maxed out their qual­i­fied plans.”

NQDC plans en­able high earn­ers to set aside larger amounts for re­tire­ment than they can with a tra­di­tional 401( k) plan. But, un­like a 401( k), you can’t bor­row from an NQDC.

In ad­di­tion to non­qual­i­fied plans, Taussig rec­om­mends health­care ex­ecs take a holis­tic view of their over­all ben­e­fits. “This is what I call to­tal ben­e­fits op­ti­miza­tion — help­ing ex­ec­u­tives make sure they’re op­ti­miz­ing all of their ben­e­fits.”

“Golden Para­chutes”

An­other ben­e­fit for key ex­ec­u­tives are so-called golden para­chutes. “The typ­i­cal parachute is part of an em­ploy­ment con­tract,” says Barry Koslow, chair­man of the board at New Eng­land Si­nai, a for-profit hospi­tal in Stoughton, Mass. “They of­ten pro­vide one to three years’ pay and ben­e­fits if ter­mi­nated with­out cause and be­fore the ex­pi­ra­tion of the con­tract. Some are off­set or are trun­cated when the ex­ec­u­tive finds a new po­si­tion.”

A new gen­er­a­tion of more mo­bile hospi­tal ex­ec­u­tives, along with an ac­tive M&A mar­ket in health­care, have in­creased the rel­e­vance of golden para­chutes in re­cent years.

SERPs

An in­creas­ingly pop­u­lar com­pen­sa­tion tool for health­care providers are sup­ple­men­tal ex­ec­u­tive re­tire­ment plans (SERPs). Sim­i­lar to non­qual­i­fied de­ferred com­pen­sa­tion plans, non­qual­i­fied re­tire­ment plans do not meet the IRS or Em­ployee Re­tire­ment In­come Se­cu­rity Act re­quire­ments for be­ing im­me­di­ately tax-de­ductible to em­ploy­ers. They are of­ten used to ad­di­tion­ally com­pen­sate high-level ex­ec­u­tives.

More­over, SERPs help off­set lim­its on qual­i­fied plan ben­e­fits. “CEOs gen­er­ally re­ceive a much lower in­come re­place­ment ra­tio at re­tire­ment with­out some type of sup­ple­ment,” Koslow says.

“A well-de­signed plan might put a se­nior of­fi­cer on the same foot­ing as an ‘av­er­age’ em­ployee in terms of re­place­ment ra­tio. But ad­di­tional ben­e­fits can come from achiev­ing pre­de­ter­mined per­for­mance goals and mea­sures.”

There are down­sides to SERPs, par­tic­u­larly for non­profit ex­ec­u­tives. For one, pub­lic dis­clo­sures some­times shed an un­wel­come light on full com­pen­sa­tion pack­ages. “Con­tri­bu­tions are dis­closed pub­licly each year, and when dis­trib­uted they are dis­closed again,” says Koslow, “of­ten lead­ing to un­de­served and un­wel­come neg­a­tive pub­lic­ity.”

An­other down­side of SERPs in the not-for-profit sec­tor is that plan ben­e­fits can be lost in their en­tirety if the ex­ec­u­tive leaves be­fore a pre-es­tab­lished time or event. Cer­tain types of SERPs, namely the 457( b), are not sub­ject to this vest­ing re­quire­ment, but carry an $18,000 to $24,000 an­nual con­tri­bu­tion limit, de­pend­ing on age. The ben­e­fits pro­vided by tra­di­tional SERPs and 457 plans also are sub­ject to the claims of cred­i­tors of the em­ployer. In a bankruptcy, warns Koslow, all or some of the ben­e­fits might be lost.

“Many peo­ple don’t un­der­stand non­qual­i­fied plans, and they’re not us­ing them. Th­ese plans are a great re­tire­ment ve­hi­cle for hospi­tal ex­ec­u­tives and physi­cians af­ter they’ve maxed out their qual­i­fied plans.” — Alexan­dra Taussig, se­nior vice pres­i­dent at Fidelity In­vest­ments

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