More executives scrutinize retirement packages

Do candidates walk out of the interview when you outline your compensation package? A sure way to de-motivate current employees who make valuable contributions to your business is to let them think that they are not being paid enough. If that perception exists at your company, it can be fixed with creative solutions that will help attract high-caliber employees and retain valued existing employees.

Priority on retirement plans

One big-ticket item that many business owners think they can’t afford is a retirement plan for their employees. Yet, more than ever, workers are making retirement a top priority.

Something that the current work force can count on is that if Social Security is still around at all by the time they’re ready to retire, it may not provide enough support.

In 2001, Congress passed legislation that gives businesses up to a 50 percent tax credit for expenses related to starting and administering retirement plans. This can be a real incentive, helping employers decide to offer retirement as part of the company benefit package. Such plans would need to be qualified, however, and many times they are still not an affordable option.

Options

Nonqualified plans can be an attractive alternative. There is much more flexibility in the design of a nonqualified plan, which may include employer controls that motivate the employees to stay on the company’s payroll. With a nonqualified plan, the employer is able to select which employees will be allowed to participate. The company will enjoy minimal administration compared to qualified plans, and Internal Revenue Service approval is not required.

For example, bonus plans offer the employer the freedom to choose only the most valuable employees for the program. Life insurance may be purchased for the employee. This “bonus” is a tax deduction for your business. The employer maintains control over the policy’s cash value until retirement age. The employee may then use that cash value as retirement income and still maintain a life insurance benefit. The employee must stay with the company in order to reap the benefits, so it is a very good retention tool.

Another benefit that appeals to employees is deferred compensation. Again, the employer chooses which key employees participate. Life insurance may be used as the vehicle to administer the benefit. No IRS approval is needed because it is a nonqualified plan. You withhold a portion of the employee’s future income to pay the premium for a life insurance policy. At retirement, participating employees may use the cash value to supplement Social Security and still have a life insurance policy. Plans such as these are sometimes said to be “golden handcuffs.”

More recruiting and retention tools are out there, often at little or no cost to you. If getting and keeping your best employees is an ongoing challenge for your company, various programs can be tailored to suit your needs. It may be worth your while to investigate.

Alan Lockhart is president of Marketing Financial, a wholesaler of financial products offered through banks, CPAs, insurance and financial advisors. He may be reached at alan@marketingfinancial.com.