Page 317 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)

Chapter 6. Employee Benefits and Perquisites 303

Defined
Years of Final
Company Benefit Contribution Total
Pay
C $97,200 $154,915 $252,115 100.8

F 107,953 131,101 239,054 95.6
I 83,138 141,052 224,190 89.7

A 105,465 112,749 218,214 87.3
E 104,208 108,302 212,510 85.0

Brucell 102,155 103,379 205,534 82.2
D 103,940 83,137 187,077 74.8

G 80,350 79,522 159,872 63.9
B 57,493 59,138 116,631 46.7

H 46,805 53,996 100,801 40.3
Averages 98,745 91,306 190,051 76.0
(excluding
Brucell)
Table 6-21. Annual annuity from defined-benefit and defined-contribution plans as a
percentage of final pay of $250,000 with 30 years’ service
Note that the annual annuity comes from both the defined-benefit and the defined-contri-
bution plans. Most companies survey these separately, never pulling them together. This is a
mistake because one never sees the full pension benefit. It is against this combined benefit
that one needs to measure competitiveness. Later, one can determine the relative competi-
tiveness of the defined-benefit plan separately from the defined-contribution plan. While
keeping the combined benefit in mind, there are good reasons to vary the balance of the
defined-benefit and defined-contribution plans from those of the competition. Of course,
since the defined-contribution plan is expressed in a lump sum, it needs to be converted to
an annual equivalent. This is not that difficult with a little help from an actuary, and plan par-
ticipants typically have the option to buy an annuity, so the comparison is very appropriate.
Note that in Table 6-22, both plans combine in a lump-sum form. Since many pension
plans permit lump-sum payments, this is more than an academic exercise.
The primary analysis in both situations should include employer contributions only.
With the defined contribution, it would be appropriate to use the maximum allowed for
each plan. A separate calculation could also be prepared including the employee contribu-
tion. Actually, when reviewing with the employee, one would show three charts: employer
only, employee only, and combined employer/employee. This, of course, would only be for
one’s own data. The inclusion of other companies allows an analysis of the competitive
benefit.