Ideas for Employee Benefits and Rewards

Transcription

1 Ideas for Employee Benefits and Rewards Growing Exiting Patti Bell, The Principal Financial Group Lee Nicholas, University of Northern Iowa

2 Disclaimer While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Insurance products from the Principal Financial Group are issued by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company, Des Moines, IA Survey was conducted by Harris Interactive and includes 511 online interviews conducted from July 13, 2010 to August 9, Interviews were conducted using Harris Interactive Small Business Panel.

3 Rank Order of Importance While Business Protection is viewed as most important (rated number 2 in 2008), Group Health Benefits was a close second. Income Protection is a third tier priority Business Protection 2 2 Group Health Benefits Income Protection 5j 4 Qualified Retirement Plans 3 5 Group Non Medical Benefits 2 4 (Dental, Vision, Life, Long Term Disability and Short Term Disability) 6 Supplementary Retirement Income 6 7 Voluntary Employee Benefits Wealth Transfer 9 9 Survivor Income 8 10 Exit Planning 10 3

4 First Priority: Business Protection One out of three business owners (30 percent) has a protection plan in place in case of death, disability or termination of key employees. The most common form of protection offered is key person life insurance (23%). In 2010, significantly more business owners have Key Person Life Insurance.

5 Second Priority: Group Health Benefits Fewer than half of business owners (42 percent) offer comprehensive health insurance to their employees 29 percent of firms with two to nine employees offer health insurance as opposed to 80 percent of firms with 200 to 499 employees Health insurance costs have risen 129 percent in the last 10 years. Health premiums have risen almost five times as much as the overall rate of inflation since 2003* *Employers, Workers, and the Future of Employment-Based Health Benefits. EBRI Issue Brief #339. February 2010

6 Third Priority: Income Protection Only one-quarter (24 percent) of business owners have individual disability insurance plans for themselves

7 Fourth Priority: Qualified Retirement Plans Four of ten business owners (39 percent) offer qualified retirement plans to their employees Most commonly offered retirement plan is a 401(k) plan (23 percent), followed by profit sharing (8 percent), SIMPLE (6 percent), and SEP (4 percent) Larger companies are significantly more likely to offer a 401 (k) plan to their employees 200 to 499 employees 79% 10 to 49 employees 28%

8 Fifth Priority: Group Non-Medical Benefits More than half of business owners surveyed (54 percent) do not offer any group non-medical benefits Dental and life insurance are the most commonly offered nonmedical benefits. Both are offered by more than one quarter (26 percent) of business owners. Supplemental disability programs are offered by 11 percent of business owners. About half of business owners (53 percent) pay the entire premium

9 Sixth Priority: Supplemental Retirement Plans Only 14 percent of business owners offer some type of supplemental retirement plans for themselves or their key employees. Nearly two-thirds of business owners (64 percent) indicate they or their key employees are limited in the amount they are allowed to contribute to qualified retirement plans

10 Seventh Priority: Voluntary Benefits Most commonly offered voluntary benefits, in order of frequency, include dental, life, accident, long-term disability, and cancer insurance Among business owners who offer voluntary benefits, most (52 percent) say they offer them to attract and retain employees; 48 percent say they do so to improve worker morale or satisfaction

11 Eighth Priority: Wealth Transfer 66 percent of business owners have some type of plan in place for wealth transfer. Almost half of all business owners (47 percent) have a will in place 15 percent of business owners possess a family trust 8 percent of business owners possess an irrevocable life insurance trust

12 Ninth Priority: Survivor Income 70 percent of business owners have life insurance while LIMRA research shows that 56 percent of individuals with incomes of $100,000 and more* have life insurance Of all U.S. households, slightly more than four in ten (44 percent) have life insurance *Employers, Workers, and the Future of Employment-Based Health Benefits. EBRI Issue Brief #339. February 2010 **2010 LIMRA 2010 Life Ownership Study

13 Tenth Priority: Exit Planning Only one-quarter (27 percent) of business owners have an exit plan, leaving the vast majority of business owners without a plan to leave their business Only two in ten business owners (18 percent) have funded a buy-sell plan with life insurance More than six in ten (62 percent) have never had a business valuation Almost a third of business owners (31 percent) do not plan to retire; if they do plan to, three in ten (30 percent) plan to sell their businesses to outside parties

14 Insuring the Gaps This information is from the Principal Financial Group Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin ( It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial professional Principal Financial Services, Inc.

15 Challenge: Retaining and Incenting Key Employees Retaining and incenting the difference maker Love what they do Tie performance to reward Futures in-sync

16 Challenge: Retaining and Incenting Key Employees Retaining and incenting the difference maker Money is a tool Significance and durability Reward commitment by growing the bonus

17 Qualified Plans SEP, SIMPLE, DEFINED BENEFIT & DEFINED CONTRIBUTION

18 SOURCE OF INFORMATION IRS PUBLICATION 560 RETIREMENT PLANS FOR SMALL BUSINESS

19 SIMPLIFIED EMPLOYEE PENSION These plans do require a formal written agreement and do provide retirement benefits for the owner and any employee who is 21, has worked for you in 3 of the last 5 years, and has received compensation of at least $550.

20 SIMPLE PLANS These plans are individual IRA plans that allow employee matching, may be used only if you have 100 or fewer employees who received at least $5000 in annual compensation.

21 QUALIFIED PLANS Defined Contribution Plans or Defined Benefit Plans are complex plans that have numerous rules and require significant planning. They also have withdrawal limitations of penalties of 10% if withdrawn before age 59 ½ years of age and require minimum distribution at 70 ½.

22 The Retirement Gap filling the gap that Social Security and your qualified plan doesn t cover

23 Challenge: Retaining and Incenting Key Employees Nonqualified executive benefit plans Flexible vesting Tax advantages Market- or company-based growth

24 Nonqualified Decision Tree

25 Challenge: Retaining and Incenting Key Employees Considerations: Type of entity Challenges and priorities facing the business owner Business objectives Funding options to meet objectives

26 Challenge: Retaining and Incenting Key Employees Typical Business Challenges: Business continuation Income tax Cash flow Raising capital Owner fringe benefits

27 Challenge: Retaining and Incenting Key Employees What s Important: Retaining top hat key employees Retaining non-top hat key employees Deduction on contribution Tax deferral for participant Who has the lower tax bracket company or executive?

28 Nonqualified and Equity/Property Plans Qualified Plans 415 Limits Coverage Limits

29 Thank You