Page 263 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 249

Today, companies have varying degrees of participation in financial counseling pro-
grams based on organization rank. Operating on the assumption that executives do not
have sufficient time to focus on the long-term financial affairs of the family and that a
financial planning benefit would not be taxable to the individual, many companies have
implemented personalized full-service programs. However, some of these services are no
longer tax deductible and those that are are limited to the amount that exceeds a stated per-
centage of adjusted gross income. Financial planners come in all shapes and sizes, ranging
from insurance agents, bankers, and stockbrokers to broad-gauge specialists. Obviously,
insurance agents, bankers, and stockbrokers will be partial to their own products or at least
not as knowledgeable about competing products. To avoid this drawback, many choose a
broad-gauge advisor such as a certified financial planner or CFP (a designation given by
the Certified Financial Planners Board of Standards); a chartered financial analyst, or CFS
(a designation given by Investment Management and Research); or a personal financial
specialist, PFS (designation given by the American Institute of Certified Public
Accountants). Each designation requires meeting experience criteria and passing an exam-
ination. Other broad-gauge advisors include CPAs and CLUs. A CPA is a certified
public accountant, and a CLU is a chartered life underwriter. These are only several of many
possible specialty designations. Additionally, a planner who recommends stocks and bonds
must register with the SEC. If the planner is not an attorney, one will be needed to set up
a will and appropriate trusts. Another form of assistance comes from the professional
organizer, who puts everything in place and sets up easy-to-maintain record systems. But
the new system is not self-administering and must be kept up-to-date. Of course, for a fee
someone else can do that as well.
Typically, a company selects several financial services firms, allowing the executive to
choose one. However, sometimes the company will permit the executive to choose a firm not
on the list. Personal chemistry is often a key determinant in the process. Regardless of choice,
the company establishes a maximum amount that it is willing to reimburse (e.g., $20,000 the
first year and $10,000 thereafter). The IRS stated in Revenue Ruling 73-13 that the full value
of financial counseling (while a business deduction to the company) was compensation for
services to the executive under Section 61 of the Internal Revenue Code. The value of the
financial planning service is imputed as income to the executive, and a payroll tax deduction is
included. The executive can take this service, along with other nonreimbursed job expenses,
as a tax deduction if it exceeds 2 percent of adjusted gross income. A number of companies
gross up the tax in order to make it a tax-free perk.
At lower management levels, individuals would be eligible to attend a one- or two-day
seminar (perhaps with spouse) to study the general nature of estate preservation techniques.
Seminars often include workbooks in which to develop (in conjunction with an attorney
and CPA) an individual plan, in other words, identifying location of all important
papers, ensuring wills exist and are current, determining the amount of life insurance
needed, and minimizing estate tax liability. In such instances, expenses might be charged
off as management development and no imputed income assigned. Traditionally, computer-
generated benefit statements of benefit programs are the basis for examining company
coverage.
Regardless of the type of program, some companies request the executive sign a release
(allowing the company to provide the financial planner with specific information about the
executive’s pay and benefits) and a waiver (holding the company harmless for any adverse
consequences based on information received).