Executive Benefits 101: What, Why, Who, and More

What are executive benefits?

At EBS, we specialize in creating, structuring, implementing, and administrating executive benefit programs. But what exactly are executive benefits?

Executive benefits enable an organization to selectively reward the key employees and executives of a business. Unlike qualified plans, like 401(k) plans, for example, there are no coverage or participation requirements for an executive benefit program. This allows a company to provide rewards and incentives based on an employee-by-employee approach, offering maximum design flexibility.

Executive benefit plans typically focus on protecting executives and their families against death or disability while employed, and on providing sufficient levels of retirement income.

Why offer executive benefits?

We believe executive benefits are a critical component of any corporate benefits strategy.

The COVID-19 pandemic made widespread remote work a reality and effectively created a global talent pool. Businesses can now find top talent anywhere. The downside, though, is that top executives have more opportunities for employment.

Executive benefits can help companies compete and attract key executives who will contribute to company growth and profitability. A well-designed executive benefit program can provide incentives that help retain key executives for the longest possible time.

Executive benefit plans can be structured to provide flexibility in developing benefit compensation strategies, as they can be used to:

  • Provide replacement income at retirement based on total compensation (not limited compensation)
  • Attract, reward, and retain key executives
  • Replace benefits lost due to IRS limits on qualified plans
  • Provide benefits in addition to those under qualified plans
  • Defer compensation to a future date, such as retirement
  • Provide enhanced benefits in the event of an acquisition or other change of control

Who is eligible?

Unlike qualified plans, which must be offered to a non-discriminatory group of employees, a non-qualified plan may be offered to a select group of employees. The Department of Labor (DOL) requires that the plan be designed to cover a select group of management and/or highly-compensated employees.

Certain job titles generally meet this description such as, president, chief executive officer, chief financial officer, senior or executive vice president, general counsel, and treasurer. Other employees may be eligible based on their level of compensation and responsibilities.

The select group can even be quite narrow, for example, President, and effectively cover a single individual.

A key objective of plan design is to stay within the DOL requirement and confine the benefit to a select group of employees. Otherwise, the significant reporting and compliance requirements of ERISA would apply.

Examples of executive benefit programs

Deferred Compensation Plan (DCP)

The IRS limits an employee’s pretax savings contribution in a 401(k) plan to $20,500 per year in 2022, with an additional $6,500 for those age 50 and older. For highly compensated executives, maximizing 401(k) contributions can result in an inadequate accumulation of retirement assets. 1

A deferred compensation plan allows for the deferral of up to 100% of all forms of pay, including base salary, bonus, commissions, and special incentives. Even restricted stock units, a significant component of executive compensation, can be deferred.

Historically, the focus of these plans has been on the deferral of compensation until retirement. But a plan that allows for payouts before retirement can attract the younger executive who is planning for significant pre-retirement expenses like college tuition and second homes.

In addition to an executive’s voluntary contributions, employers can also contribute to an executive’s deferred compensation account. Vesting requirements can be used to enhance executive retention.

Supplemental Retirement Plan (SERP)

Supplemental retirement plans are company funded programs. Some are implemented to enhance benefits provided to all employees under a qualified plan. For example, a company might provide a 50% match in their 401(k) plan on employee contributions of up to 6%. Because the IRS limits the amount of compensation the match can apply to of up to $305,000 in 2022, executives earning over that amount who contribute 6% would be losing out on company match contributions. A 401(k) restoration SERP could provide a vehicle for employee and employer contributions over the IRS compensation limit.1

SERPs can provide benefits beyond those provided under the qualified plan. Enhanced benefits might include:

  • A benefit based on a more generous formula than used in the qualified plan
  • Credit for additional years of service under a defined benefit plan
  • Enhanced retirement benefits for executives who retire early
  • A benefit reflecting compensation excluded under the qualified plan’s salary definition such as bonuses and deferred compensation
  • A defined contribution incentive retirement plan that allows a company to reward top executives based on the performance against specific company benchmarks.

Loan Regime Split Dollar (LRSD)

Split dollar is a form of life insurance ownership under which a company lends the premiums to an executive for a cash value policy at low Applicable Federal Rates (AFR). The loan is secured by the policy and is either paid back at retirement using a portion of the cash value or paid back at death using a portion of the death benefit.

The only cost to the executive is the interest on the loan, which can either be paid annually (or treated as imputed income with a resulting tax cost) or added to the loan. If added to the loan, there is no out-of-pocket cost to the executive.

The insurance policy can provide death benefit protection for the executive while employed. Then, during retirement, the accumulated cash value can be used to supplement retirement income. Structured properly, distributions from the policy can be income tax-free.

LRSD plans can be financially attractive to plan sponsors when compared to other forms of cash compensation because plan funding is ultimately recovered through loan repayment.

Restricted Endorsement Bonus Arrangement (REBA)

Rather than lending premiums to an executive under a LRSD plan, a company can bonus an executive the funds to pay for a cash value life insurance policy that the executive owns. This bonus is deductible to the company and taxable to the executive. The company could choose to gross-up the bonus amount to cover the tax cost on the bonus.

As with a LRSD plan, the insurance policy can provide death benefit protection for the executive while employed. Then, during retirement, the accumulated cash value can be used to supplement retirement income.

To restrict an executive’s early access to policy cash value, the company can place a restrictive endorsement on the policy. This can encourage the executive to remain with the company to receive additional bonuses and the cancellation of the endorsement at a later date.

Disability Insurance (DI)

Most companies provide access to group disability benefits for all employees. However, group plans often cap the benefit paid during disability to 60% of salary. In addition, most have monthly benefit caps of $10,000 or less. The cap on the benefit and the exclusion of all non-salary forms of compensation can challenge an executives’ ability to maintain their lifestyle if they become disabled.

A supplemental disability policy can help cover the difference between what the employee will receive from the employer’s group long-term disability policy and what they need to maintain their lifestyle if they become disabled. Specialty plans are available that can replace base salary and incentive compensation for highly compensated employees. These plans typically do not require medical underwriting and are portable.

Implementing a Plan

EBS has been helping clients develop executive benefit plans for their top talent for over 30 years. Executive benefits are an excellent way for an organization to create personalized retirement benefits for their top talent.

When a client comes to EBS looking for ways to improve their benefits program (or initiate) we use a consultative approach to review your current strategy and company goals and to identify employees that the plan would be offered to. We present a range of alternatives and financial models for each.

Once a plan is placed, we strive to provide expert ongoing administration and technical support to help ensure the plan remains compliant and cost-effective.

1 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits.

Insurance guarantees are based on the claims-paying ability of the issuing company. Neither EBS nor LSF offers tax or legal advice. Always consult your tax professional.

The Deferral and Diversification of Restricted Stock Units


In the first blog in this series, we discussed how the design of long-term equity compensation plans has evolved from a primary emphasis on stock options to the portfolio approach commonly used today.  And within the portfolio of equity compensation awards, Restricted Stock Units, both time-vested and performance-vested, have become the vehicles of choice for many companies because of the flexibility of plan design, potential tax advantages and simplified stock plan administration.

In the second blog we provided a hypothetical analysis illustrating the potential advantage of the deferral of taxation upon vesting of RSUs and discussed various issues associated with participation in a non-qualified deferred compensation plan.

In the third blog, we addressed the issue of diversification; that is, the ability of a participant in a non-qualified deferred compensation to reallocate some or all of the RSUs deferred to other fund choices offered under the plan (such as a notional S&P 500 fund). We noted that, contrary to conventional thinking, it may be possible to design a plan that permits the voluntary deferral and diversification of RSUs deferred without triggering accounting issues.

In this fourth and final blog in the series, we will turn our attention to the critical importance of professional, on-going plan administration and participant communications; specifically, related to the timing of RSU deferral elections and the management of distributions.

Deferral Election Timing – Introduction

An election to defer income taxes on RSUs beyond the vesting and payment date must be made in compliance with Section 409A, the Code section that deals with the taxation of non-qualified deferred compensation arrangements.  The rules are quite specific but allow for a good deal of flexibility as to the timing of a deferral election, and the timing and form of the elected benefit distributions.

The following is an overview of the general deferral election timing rule and a few valuable exceptions to the general rule.

Deferral Election Timing – Time Vested RSUs – General Rule

  • A deferral election must be made in the year before the year of grant, e.g., December 2021 for RSUs to be granted in 2022.
  • A separate election is made for each vesting tranche including: the percentage of the RSUs granted to be deferred, the period of deferral (to retirement or to a specified date), and the form of benefit payments (in a lump sum or in installments).
  • Note that the deferral election applies to income taxes (which are deferred until distribution) but not to FICA and Medicare taxes, which are due upon vesting.
The Deferral and Diversification of RSUs

Deferral Election Timing – Performance-Based RSUs – General Rule

  • Once again, the deferral election must be made in the year before the year of grant as illustrated in the graphic below.
Diversification of RSUs

Deferral Election Timing – Exceptions to the General Rule

There are a few important and potentially valuable exceptions to the general rule regarding the timing of deferral elections.

  • 12 Month / 5 Year Exception: Under this exception, it is possible to make deferral election at any time up to 12 months prior to the vesting date as long as the elected distribution date is at least 5 years after the originally scheduled distribution date (upon vesting). This exception is applicable to either time vested or performance vested RSUs.
    • “Look-back” Deferral Election. As illustrated in the graphic below, an election to defer RSUs that are part of a vesting traunch that is more than 12 months out, could be made after the date of grant. Once again, this exception to the general rule could be used for either time-vested or performance-vested RSUs.

Example 1: “Look-Back” Deferral Election for Time Vested RSUs

  • The graphic below illustrates such a “look-back” election made more that 12 months before the vesting date for the March 1, 2024 and 2025 vesting tranches. Once again, the elected deferral would have to be for a minimum of 5 years.
Deferral of RSUs

Example 2: “Look-Back” Deferral Election for Performance-Vested RSUs

  • As illustrated below, a deferral election could be made anytime at least 12 months prior to the original cliff vesting / distribution date, as long as the new distribution date is at least 5 years later than the original date.
“Look-Back” Deferral Election for Performance-Vested RSUs

Deferral Election Timing – Exceptions to the General Rule

A second valuable exception to the general deferral election timing rule is for “performance-based compensation” as defined under Section 409A.

  • In this case, a deferral election can be made anytime up to 6 months prior to the end of the performance measurement / vesting period if:
    • Vesting is contingent on the attainment of pre-established performance criteria and,
    • The award qualifies as “Performance-Based Compensation” as defined in Section 409A.


Example 3: Deferral Election Timing – Performance-Vested RSUs – “Performance-Based Compensation” Exception to the General Rule

  • Assuming the P-V RSUs meet the Section 409A definition of “performance-based” compensation, a deferral election could be made anytime at least 6 months prior to the end of the performance measurement/vesting period.
Deferral Election Timing – Performance-Vested RSUs – “Performance-Based Compensation” Exception to the General Rule

Proxy Research / Analysis  To Do

EBS has developed a standard process for the review of proxy statements to identify situations where the deferral of RSUs could be of significant value to executives, especially in the case of a “look-back” election for RSUs previously granted.

The following is an example of a report produced by the review process.  Note:

  • In Column 13 an indication of whether that specific vesting trance is eligible for deferral,
  • In Column 15, the market value of the RSUs eligible for deferral and,
  • In Column 16, an estimate of the income taxes that would be due upon vesting without a deferral election.

Note:  Hypothetical results are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.

EBS RSU Proxy Analysis


  1. For the 8/1/2019 one-time integration PSU grant, the maximum payout reported as unearned was used in the analysis; and for the 2/28/2020 grant for the 2020-2022 performance period, the target payout was used.
  2. For illustrative purposes, the total reported for RSUs and Restricted Stock Awards were shown as RSUs.
  3. For illustrative purposes, it was assumed that ABC Corp. granted PSUs and RSUs similar in value to those awarded in 2020.

In Summary 

First, from a plan design standpoint, it may be possible to structure a non-qualified deferred compensation plan that could significantly enhance the value of the total rewards package for senior executives by permitting the voluntary deferral and (subject to specific requirements) diversification of RSUs deferred.

Secondly, it is essential that such a plan be managed professionally on an on-going basis by a firm that understands the nuances of the non-qualified deferred compensation tax rules, and stock plan administration.  For example, as noted above, the opportunity for a “look-back” election to defer RSUs previously granted could potentially generate significant tax savings with respect to RSUs grants made in the past, such as the receipt of a signing bonus in the form of a significant RSU grant.

If you are interested in having EBS complete a review of the company’s proxy statement to identify the potential value of the RSU deferral and diversification strategy or if the company currently sponsors a non-qualified deferred compensation program that doesn’t offer this feature, please contact one of the firm’s Managing Directors and we would be glad to set up an exploratory call.

Restricted stock units (RSUs) are a form of stock-based employee compensation with no liquidity until vested.  They provide no dividends or voting rights.  The value of the RSU may decrease before it can be liquidated.  Diversification does not guarantee a profit or protect against a loss in a declining market.  It is a method used to help manage investment risk.

Complimentary Proxy Review Request



EBS is an executive benefit consulting firm.  It does not provide accounting or tax advice.  The tax and accounting treatment described above for the deferral and diversification of RSUs is based on the firm’s experience working with its clients and their advisors on similar plan designs.