Employers are constantly trying to find ways to attract and retain high-quality employees. Throughout the years, benefit plans have grown immensely in terms of size and complexity. From qualified plans to nonqualified plans and from ESOPs to ISOs, keeping track of the logistics and putting them into a sensible practice for your future is a difficult task. These same employer provided benefits, however, play an integral part to the success of a holistic financial plan. Financial Foundations works with business owners, CEOs, and executives to navigate through various benefits choices to maximize the impact on their overall financial futures.
Below are examples of corporate benefits that are often misunderstood and, more important, underutilized.
COMPANY RETIREMENT PLANS
In the absence of the traditional defined benefit pension plans, company-sponsored defined contribution plans have taken their place. These plans appear simple on the surface but can hold multiple layers of benefits for those who choose to fully use them. Over the past 30 years, 401(k)s, 403(b)s, and TSPs have become the largest single financial asset for many Americans. Ensuring that you are saving enough and properly allocating/monitoring your investments is paramount. Equally as important is understanding the plan documents themselves in order to unlock unused, or underused, benefits. Many plans allow for after-tax contributions above and beyond the traditional IRS limitations. Some feature special withdrawal or annuitization features, while others offer tiered vesting or special profit-sharing provisions. At Financial Foundations, we help you unlock the true potential of these plans and ensure that you are maximizing this employer-provided opportunity.
EMPLOYEE STOCK PURCHASE PLAN (ESPP)
The ESPP provides an easy method for employees to purchase company shares, typically via a payroll deduction. They provide employees with a regular means of increasing their income over time, notably when a company stock is in an uptrend. Additionally, these plans typically do not require that the purchased stock is held until retirement, thus offering greater flexibility and a means to fund different obligations that may arise in your future. It is our job at Financial Foundations to analyze, interpret, and ultimately recommend the best way for you to take full advantage of your ESPP within the confines of your own Personal Foundations Plan.
Restricted stock has been growing in popularity as a method to compensate employees, primarily as a result of changes in accounting regulations that went into effect in 2006. For example, the employee is given stock ownership in a company, or given shares of that company, after satisfying a common restriction period known as the vesting period. Typically, restricted stock is broken down into performance stock units (PSUs) and restricted stock units (RSUs). Beyond the typical vesting period that assures that the employees are participating in the longer-term success of the company, many plans allow for additional deferral of these awards. These deferrals may be customized to suit the individual’s needs; however, they must adhere to the plan documents and the rules and regulations within. Having dealt with these plans in depth, we at Financial Foundations know the ins and outs of the plans, the benefits, and dangers. It is our job to educate you on these and advise on the proper use of the plan to fulfill your specific needs.
Employee stock option plans are contracts between a company and its employees that give employees the right to buy a specific number of the company’s shares at a fixed price within a certain period of time. Employees hope to profit by exercising their options to buy shares at the exercise price when the shares trade at a price higher than the exercise price. Although no one may know more about a particular company than its employees, there are pages of regulations that limit how insiders, such as corporate executives, utilize these plans—and even more severe penalties for running afoul. Knowing these rules is the best way to maximize your company’s plan.
CORPORATE-OWNED LIFE INSURANCE (COLI)
Corporate-owned life insurance (COLI) refers to a life insurance policy that is purchased by a corporation for its own use. Typically, the corporation is an owner and beneficiary on a policy, while the employee is listed as the insured on the same policy. Many times, a COLI is used to fund a non-qualified deferred compensation plan. Financial Foundations can assess and make recommendations on your COLI or recommend alternatives to better fit your individual needs and those of the employer.