Page 310 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

296 The Complete Guide to Executive Compensation

estate, put the face value of the policy is paid to the VSP. This is an alternative to the long-
term contract described under home care in the “Health Care” section of this chapter and
may be more attractive to the executive worried about providing financial assistance to an
ailing parent. However, it is still unlikely to be of more than moderate importance.
Legacy Grant. Some make an educational or charitable organization the beneficiary of a
stated dollar amount at the time of the insured’s death. The insured usually gets credit for the
amount while living for publicity purposes. These organizations are usually very helpful in
the design of such policies.
After Retirement. Typically, coverage cuts back quickly and significantly upon retirement.
One way to reduce coverage is to reduce annual installments over several years until reach-
ing a final death claim of $5,000 or less within five years of retirement, regardless of the
amount of protection while active. Some plans provide for one times protection until death;
however, this can be a very costly benefit amount. Regardless of the plan, the executive must
determine whether postretirement insurance will be sufficient and, if not, begin to prepare
well before retirement. One advantage of retiree life insurance provided by the company
is that it is not subject to imputed income. Therefore, the $50,000 restraint for active
employees is not an issue for retirees. Alternatively, life insurance could be provided through
a retired lives reserve plan (discussed earlier in this chapter) where the funding occurs over
the retiree’s active period of employment.
Summary of Survivor Protection

As shown in Table 6-19, survivor protection programs and plan features overall are
moderately important to the executive. High policy limits raise importance; low dollar limits
lower importance. In some situations, the employee benefit protection may be adequate
to meet much of the executive’s needs, thereby eliminating the need for a special executive
benefit add-on.

RETIREMENT

For many, age 65 is considered an appropriate age for retirement, although some retire
earlier (if they have accumulated sufficient money) and others work later either because of
financial need or because they like what they do. Most give credit to Germany’s Chancellor
Otto von Bismarck for setting this retirement age in 1883. He did so to stop Marxists from
taking over the country by promising widespread social programs. Bismarck was quite
clever—he knew that few would live to that age. Nonetheless, he set the precedent not only
of a retirement age but of government paying people to stop working at that age.
Whereas pension plans were once considered a gratuitous gift by the company to
employees reaching an age at which they were no longer able to perform their tasks, the cur-
rent thinking of many employees is that such payments are an earned right—an involuntary
form of deferred compensation. Pension plans (a.k.a. “retirement plans,” as the two will be
used interchangeably in this review) are either defined benefit or defined contribution, or
a hybrid of the two. The plan either qualifies for favorable tax treatment or it does not. A
qualified, or statutory, retirement plan (indicating its status is described by tax statute) has
several very attractive features. Namely, the company can make currently tax-deductible
contributions to either a trust or insurance company on behalf of an active employee to