Your career has brought you to the top because of the great experience of working for several major companies, both in and out of your current company’s industry. You’re in the C-Suite and playing an important role in management and moving your company forward. You have a great salary and a wonderful work environment.
That’s the great news.
The bad news: everyone who reports to you likely has a better benefit package.
The big thing used to be that executive and senior manager benefit packages were better than everyone else’s…now, other than equity, you may be last in line when you consider the organization’s benefit package.
With all the fuss about executive compensation, we have found that Boards have subconsciously built a bias against adding benefits to an executive package that concern retirement, death and disabling illness or injury. Yet, what they don’t realize is that in most cases, an employee with a median company salary has a proportionately better benefit program than executives do. It may be the same language, but certain provisions of the typical benefit plan together with tax and legal limitations work against many top executives.
A simple example: if your salary for 2018 is $550,000 and one of your reports earns $275,000, if your company contributes 5% to the retirement plan, you’re only going to get 2.5% while your report gets 5%. Why, because the law limits covered salary to $275,000 for 2018. That’s a lost contribution of $13,750. Now, think of the impact as your compensation grows faster than the covered salary limit grows. Incentive compensation amplifies the problem even further.
Another area is Social Security. Your employer pays an amount equal to what you pay for the retirement component, but only on the first $128,700 of taxable earnings at a rate of 7.65%. Obviously, that works great for the majority of employees, but not so much for the executive team. Again, looking at a $550,000 salary, 7.65% of the uncovered $421,300 is $32,103.
With just these two components, you are missing a retirement contribution combination of $45,853 annually that probably increase each year. Over time, that is serious reverse discrimination.
Retirement is not the only benefit that is likely to be lagging.
Your group life insurance program may provide two or three times salary, but it has a cap, and many plans cap at $500,000 of benefit or less. That’s less than one times salary at $550,000.
Group disability plans are even worse. Even though the benefit is stated at something like 60% of salary (no bonus coverage), there is a monthly benefit cap that rarely exceeds $15,000 – and then it is likely reduced by Social Security disability benefits, a long list of other benefits and
maybe even your retirement benefit. At high salaries, the net monthly benefit is often in the single digits as a percent of salary (never mind the incentive comp).
Do you need a plan that provides superior benefits to those of your company’s rank and file? That may be a question, but it should start with being on an equal footing. You need to look at how those benefits can be restored. MKA has specialized in Parity Plans for over 50 years.
For further information contact: Barry Koslow, JD, at MKA bkoslow@mkaplanners.com 781-939-6050 (O) 781-724-6695 (M) or Dennis Sexton dsexton@mkaplanners.com 781-939-6060 (O) 978-395-6741 (M)
Securities offered through Advisory Group Equity Services, Ltd., Member FINRA/SIPC/MSRB. 444 Washington Street, Suite 407, Woburn, MA 01801 (781)933-6100. Advisory services offered by Trust Advisory Group, Ltd., a Registered Investment Advisor.
This article should not be considered as providing accounting, business, financial, investment, legal, tax, or other professional advice or services. It is not a substitute for such professional advice or services, nor should it be used as the basis for any decisions or actions that may affect your business or you personally. This should only be one part of your research. You should seek authoritative guidance from a qualified accountant or attorney before taking any action.
© MKA Executive Planners, 12 Gill Street, Suite 1050, Woburn, MA 01801 800-332-2115
