Background: In this tight labor market, top talent of companies are being hit hard by executive search firms to go work elsewhere. Businesses need to get proactive and creative about retaining their top talent as those folks are essential to their current and continued growth and success.
Our Case: B&E has been engaged with this client and handling their 401(k) since 2006. A few years ago the client’s key folks in both operations and the front office had been regularly approached by search firms working to entice these employees to consider other alternatives. A loss of any one of those individuals would have significant impact to their operations and future potential. A couple of these folks were the potential business successors. It was essential that they not only retain them but help them create funds available to eventually buy the company from the current owners.
We crafted a flexible Golden Executive Benefit Arrangement (GEBA) for each of these employees. Each one was based on a set amount, which was dependent on the performance of the company. If the company did not do well, it may not be funded. If the company did well, more could be funded.
Variable Universal Life policies were the perfect instrument for this benefit as it has flexible funding and can grow in cash value on a tax favored basis. The policies were owned by the employees, but the employer controlled access to the cash value. Withdrawals are permitted for specific reasons and approved by the employer. Should any employee elect to leave the company, there is a claw back of some of the recent deposits.
The Results: As the program evolved over the years, additional key employees have been added to the program as determined by the employer. They appreciate the flexibility in deposits and accessing of cash value for the key employees. At any point the employer can elect to terminate the program. In fact, when one employee left, the restriction on the cash value was a bargaining chip for getting the employee to sign the Separation Agreement. If all goes according to plan, the potential buyers will have a significant down payment for the business already amassed!
Bottom Line: This employer now has a custom-designed benefit for key folks, which also have a “golden handcuff” aspect, tying them to the current profitability and future growth of the company. As labor markets tighten, businesses must protect their most valuable resource – the human resource – that keeps their businesses running day in and day out!
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planner. Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc., a State Registered Investment Adviser, Business & Estate Advisers, Inc., B &E Investment Advisers, Inc. and B&E Pension Advisers, Inc are separate entities from Valmark Securities. (1) Names have been changed to protect the identity of the client.
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