In today’s highly competitive employment market—which is often national in scope—Supplemental Executive Retirement Plan arrangements reward key employees for their performance, while offering future-orientated incentives. For organizations seeking to offer Supplemental Executive Retirement Plan arrangements, the first step should comprise the development of a Retirement Benefits Philosophy. This is an essential element of a holistic compensation program that has been designed to attract, motivate, and retain those key employees who drive the organization’s success and uphold its mission and values. At TriscendNP, we advocate that every organization should formulate a Retirement Benefits Philosophy that aligns the organization’s objectives with its retirement goals.
A Retirement Benefits Philosophy should be dynamic, sustainable, and fluid to meet the needs of the organization and its key employees over time. By design, a Retirement Benefits Philosophy:
- clearly defines the Board’s position on Supplemental Executive Retirement Plan arrangements
- promotes judicious equity, fairness, and consistency as to who qualifies for a plan and when
- educates the key employees as to the value of the organization’s program
- promotes fiscal responsibility surrounding plan implementation and administration
- guides benefit providers to view potential plan designs within the Retirement Benefits Philosophy framework
When looking to draft a Retirement Benefits Philosophy, there are a number of factors that an organization should consider, including, but not limited to:
- The organization’s income replacement methodology in retirement. The organization should also define whether income replacement is based on total compensation, total salary, final average compensation, or final average salary.
- A Defined Contribution Approach or a Defined Benefit Approach. Generally, an organization will commit to a retirement benefit encompassing a defined contribution approach (based on reasonable assumptions that are not guaranteed), as opposed to a defined benefit approach.
- The organization’s offset methodology. When calculating the amount of a Supplemental Executive Retirement Plan, the organization will often choose to offset from the amount of the benefit, all employer funding that has been contributed towards other retirement benefits, including Social Security, Qualified Plans, Supplemental Non-Qualified Plans, and Long-Term and Short-Term Incentive Plans.
- Communicating the types of arrangements that the organization is willing to provide, and whether the organization would be willing to retain the services of a third-party vendor to provide the ongoing administration of any implemented arrangements.
- Specifying that the philosophy is Board driven and will be re-evaluated by the Board periodically for suitability.
Once complete, a Retirement Benefits Philosophy should clearly define the parameters within which Supplemental Executive Retirement Plans are designed and implemented. This supports careful benefit design, as well as design phase efficiency. To that end, if your organization does utilize the services of a skilled Compensation Consultant, then a Retirement Benefits Philosophy should have already been created, but you should verify that this is indeed the case.
However, if your organization does not engage the services of a Compensation Consultant, TriscendNP representatives would be delighted to be of service in assisting your organization to develop a Retirement Benefits Philosophy. Contact us today to receive a sample Retirement Benefits Philosophy for use within your organization.