Csp Q17

Front 1

QBS 17: 1 and 2 of 23
What are the different types of objectives for an executive retirement program
(1 and 2 of 2)

Back 1

1) Restoring base plan benefits lost by benefit and pay limits
2) Providing benefits beyond the base plan
3) Protecting benefits lost by mid-career recruits
4) Recognizing pay elements not recognized in base plan
a) Incentive pay
b) Deferred compensation
5) Creating a uniform supplemental umbrella plan for executive transfers
6) Recognizing deferred compensation
7) Golden handcuffs: strict eligibility requirements
8) Non-compete provisions
9) Golden handshakes: Encourage early retirement
10) Uniform treatment of one-off contracts

Front 2

QBS 17: 3 of 23
Advantages of an executive program from the employer's perspective

Back 2

1) Attract and keep executives
2) Reward executives for productivity and loyalty
3) Encourage early retirement for certain executives
4) Can tie executive to employer by restricting receipt of deferred amounts

Front 3

QBS 17: 4 of 23
Advantages of an executive program from the employee's perspective

Back 3

1) Potentially higher retirement income
2) Certain tax advantages
3) Additional death benefit coverage
4) Early retirement with full benefits
5) Extension of income into retirement
6) Spreading bonuses over a wider range of years

Front 4

QBS 17: 5 of 23
What are some methods of protecting mid-career executive hires

Back 4

1) Short service eligibility requirements
2) Recognize service with prior employer
3) Provide generous accrual rates during first few years of service
4) Additional contributions under DC plan

Front 5

QBS 17: 6 of 23
Advantages of unfunded DB plans

Back 5

1) Easier to administer
2) Easier to explain
3) Provide more flexibility in plan design
4) Avoid constructive receipt issues

Front 6

QBS 17: 7 of 23
Advantages of a DC approach regardless of its funded status

Back 6

1) Easier to understand
2) Easier coordination with use of company stock
3) Imputed rates of return can be tied to company performance
4) Easier to deal with design issues for mid-career employee

Front 7

QBS 17: 8 of 23
What are the general plan provisions that need to be considered when designing an executive retirement program?

Back 7

1) Eligibility for participation
2) Definition of compensation
a) Elements of compensation
b) Compensation averaging period
3) Service
4) Retirement ages and early retirement provisions
5) Benefit structure
6) Vesting
7) Disability
8) Death

Front 8

QBS 17: 9 of 23
Additional Design Considerations

Back 8

1) Protecting mid-career hires
2) Internal equity
3) Cost and accounting considerations
4) Tax considerations

Front 9

QBS 17: 10 of 23
List some methods of minimizing eligibility in an executive retirement program

Back 9

1) Base on job positions
2) Base on eligibility for incentive pay
3) Restrict eligibility to those elected by comp committee or Board
4) Avoid defining eligibility based on pay threshold unless index

Front 10

QBS 17: 11 of 23
What are some approaches to developing a disability benefit in an executive retirement plan?

Back 10

1) Same as base plan
2) Can continue to accrue service while disabled
3) May treat as early retirement without reducing benefit
4) May credit service as if worked until NRA

Front 11

QBS 17: 12 of 23
What are some tax considerations regarding retirement programs

Back 11

1) Benefits taxed and deducted in an unfunded plan when paid
2) Qualified plan contributions deductible when deposited
3) Investment income in a qualified plan is tax free
4) Qualified plan lump sum distributions can be rolled over
5) SERP payments not subject to early withdrawal penalties

Front 12

QBS 17: 13 of 23
Techniques for securing unfunded executive benefits include?

Back 12

1) Rabbi trust
2) Corporate-owned life insurance (COLI)
3) Secular trust

Front 13

QBS 17: 14 of 23
What are the advantages and disadvantages of a Rabbi trust?

Back 13

Advantages
- Money in an irrevocable trust
- No constructive receipt issues
Disadvantage
- Assets subject to creditor claims

Front 14

QBS 17: 15 of 23
What are the advantages and disadvantages of a secular trust?

Back 14

Advantages
- Money in an irrevocable trust
- Protected from creditors
Disadvantage
- Member considered to be in constructive receipt of benefit

Front 15

QBS 17: 16 of 23
Deferred Compensation Arrangements: Reasons for deferring income

Back 15

1) Extending income beyond working years
2) Spreading bonuses over a wider range of years
3) Tying executive to employer by restricting receipt of deferred amounts
4) Adding to executive's retirement income

Front 16

QBS 17: 17 of 23
Executive deferred comp member should consider the following

Back 16

1) Inflation risk
2) Effects of rising interest rates
3) Current tax situation

Front 17

QBS 17: 18 of 23
Employer needs to consider the following design items regarding a deferred comp program?

Back 17

1) How much compensation can be deferred
2) Whether and how investment growth will be determined
3) Whether there will be conditions for receiving the funds
4) What the various benefit options will be

Front 18

QBS 17: 19 of 23
Approaches for determining the rate of return credit for an executive deferred comp plan include?

Back 18

1) Refer to one or more prime rates
2) Tie to rate of return on won capital
3) Base on company's cost of borrowing
4) Bond index
5) Return from base plan

Front 19

QBS 17: 20 and 21 of 23
Factors to consider on whether to fund or not fund a nonqualified plan

Back 19

1) how will funding affect the P&L
2) Cash flow impact
3) Needs of benefit security to achieve business goal
4) Tax advantages
5) Should tomorrow's shareholders pay for today's benefits
6) Additional considerations
a) Blended cost of capital/cost of dept rate
b) Financial status of the company
c) Risk/reward opportunity of not providing security top talent desires
d) Whether to provide benefit with corporate contributions or employee money

Front 20

QBS 17: 22 of 23
Types of financing vehicles

Back 20

1) Life insurance (COLI)
2) Taxable securities
3) Self finance with cash (pay-as-you-go)
4) Finance with company stock

Front 21

QBS 17: 23 of 23
Should consider the following factors when determining the appropriate financing vehicle

Back 21

1) Will after tax return keep up with benefit obligation
2) Will asset generate a P&L gain that will offset growth in expense
3) Will asset require excessive cash flow
4) Will asset have a minimal cost or will it provide a positive return to company for use of cash
5) Will change in liability performance be tracked or hedged by asset
6) Can asset be used in multiple circumstances
7) How will it perform compared to other security devices