A seminar presented by Scott Dondershine, Esq., CPA
Presentation Overview
Benefits of Non-Qualified Plans
Different Types of Non-Qualified Plans
- Equity Based (Options)
- Cash Based (Rabbi Trusts)
- Hybrid (Phantom Stock Plans)
Summary
Benefits - Easier
Not Subject to Qualified Plan Rules
- Do not have to cover substantially all employees
- Not Subject to Deferral Limits Imposed by IRS
- subject to Simplified (Or None) Reporting Requirements
Not Subject to ERISA Rules Since Not Funded
Benefits - Flexibility
Can Discriminate or Favor Certain Employees
- Plan Provides Overall Rules
- Agreements can Vary, e.g., vesting or amounts
Can Mix Types of Plans
Some employees Stock Options
Other employees Restricted Stock
Other employees deferral of bonuses using Rabbi Trust
Benefits - Employee Relations
Golden Handcuffs
- Vesting
- Forfeiture
Upside Potential
- IPO
- Increase in Stock Price
Reward Productive Employees Not All Employees
Benefits - Employee Relations
Tie Payout to Continued Compliance of Non-Compete or Non-Solicitation
- E.g. Phantom Stock Plan
Build Incentives to Achieve Certain goals or Levels
Benefits - Additional Benefits
Juggle with Qualified Plan Benefits
- Make Contributions Beyond Qualified Plan Limit
- Additional Amount in Rabbi Trust!
Types: Equity Based - ISOs
Description
Characteristics
- Grant (Key Employees)
- Vesting
- Forfeiture
- Acceleration
- Control
- Non-Voting Stock
- Shareholders Agreement
Types: ISOs Continued
Tax Treatment
- Favorable to Employees Except AMT on Spread
- Unfavorable to Employers
Restrictions/Disadvantages, Including:
- FMV Rule
- Only to Employees
- Holding Period: 2 Years From Grant; 1 Year from Exercise
Types: Non-ISOs
Similar characteristics But No Requirements
- FMV Rule N/A--So, Easier to Administer
- Can Grant to Contractors & Directors
Tax
- Unfavorable to Employees
- Favorable to Employers
Types: Restricted Stock
Grant Stock
- Voting Right on Date of grant
But, Substantial Risk of Forfeiture
Section 83(b) Election
Types: Phantom Stock
Tied to Value of Stock
Payout on Termination
- Installments
- Continued Compliance with Employment Agreement
Not for Everybody
Type: Cash Deferred Plans
Rabbi Trusts
- Named after a Rabbi!
- Deferral Since Subject to Creditors
- Grantor Trust
- No Deduction for Employer Until Income to Employee
Non-Profits:
- 457(b) - $7,500 (General Limitation)
- Ineligible - Substantial Risk of Forfeiture
Types: Other
Split Dollar Life Insurance
Annuities
Summary
Benefits:
- Easier
- Flexible
- Employee Relations
Types:
- Options
- Restricted & Phantom Stock
- Cash Deferral
