MKA Executive Planners Blog

So, you are a top executive at a large healthcare, not for profit or other form of business organization.  Because of the headline grabbers, most people think you are a fat cat, overpaid and sitting on top of the world.  That may be true for the few on the front page, but at a closer look is, quite often it is the other way around. 

Forget that you daily face increased pressure to get more done with less.  Forget that you get the blame and only some of the credit.  Forget that you haven’t had a reasonable raise in quite a while.  Forget that you are working harder and enjoying it less.  Forget that your  compensation package is published for the world to see.

Most of you are in a world of reverse discrimination.  Yes, despite what the pundits and politicians rant and rave about, when compared to the average manager and professional in your organization, you are likely to face reverse discrimination when it comes to the benefits that protect you and your family.

Most employment contracts provide for benefits “generally available” to employees of the organization.  What many do not know, do not realize or do not understand is that most “generally available” employee benefits protect top executives less than they protect the
average employee and manager.

This happens in three key areas that need adequate and substantial protection:

1. premature death,
2. inability to work due to illness or accident, and
3. retirement. 

Let’s start with group life insurance.  The experts generally say that a person should have about 10 times salary in life insurance.  Whether that is right or wrong or whether an employer should shoulder the whole burden are different issues.  However, most group life insurance policies provide two or three times salary.  Not bad.  The catch, however, is that there is a dollar limit on the benefit.  If the cap is $150,000 and the benefit is twice salary, anyone earning over $75,000 has less than two times salary coverage.  Even at $300,000, the salary covered stops at $150,000.

If you get sick or injured in an accident, a similar issue arises.  Often, the benefit is at 60% of salary (usually excludes bonus).  Here as well, there is a cap on the benefit.  If the cap is $10,000 a month, the percent of annual salary actually covered begins to decrease at $200,000.  In addition, there are usually benefit reductions for other sources of disability income such as Social Security.  The final insult is that the benefit is nearly always taxable, which can reduce the 60% to 40% or less after tax. (This can be avoided by paying tax on the premium – not a major impact.)

Retirement issues are more complex.

In today’s environment, where defined benefit pension plans are an endangered, if not extinct species, a number of factors impact the amount and scope of retirement income an executive will receive at retirement.

Today’s senior executives most often come to their position after serving at several organizations, compiling a hodge-podge of retirement benefits that linger in the dark recesses of memory or desk drawers.  There may be one or more defined benefit plan benefits, defined contribution plan accounts and an IRA or two. Rarely, there is a vested benefit in a deferred compensation/SERP program.

Since being brought back to $150,000 in 1994, the amount of cash compensation that can be covered in a qualified plan has risen painfully slowly to $255,000.  While this works for most of the population, those at the top see reverse discrimination.  The easy example, at $255,000, a 50% qualified plan benefit provides $127,500.  At $510,000, it would provide the same amount, but it would be a 25% benefit.

Defined contribution plans have a worse impact, as the higher salaries with higher contributions usually occur toward the end of a career, leaving the time for contributions to grow shorter with less for retirement income.

These are not easy problems to solve, and the issues are deeper than a few paragraphs to convey.  For more information contact Barry Koslow, JD, President/CEO at 781-939-6050 or bkoslow@mkaplanners.com.

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