For not-for-profit organizations, especially those working with high-performing, highly compensated employees, navigating retirement benefits can feel like a tightrope walk. Group benefits often fall short of covering the needs of these top earners, which forces companies to find creative ways to close the gap—both to protect their financial interests and to keep talent happy. Recently, Alex Assaley and David Hauptman of HUB International sat down together to discuss innovative executive benefit strategies to attract and retain top talent in tax-exempt organizations. Let’s dive into some of the key takeaways, and to make it easy, we’ve broken the presentation into shorter videos highlighting the major themes.
The Price of Keeping Talent Too Long
Here’s a harsh reality—when your top executives can’t afford to retire on time, they’ll stick around longer than planned. That sounds like a win, right? Not always. Retaining higher-paid, older employees means your organization is carrying extra costs: higher salaries, increased healthcare expenses, and inflated benefits. Plus, you’re blocking younger, innovative talent from stepping into leadership roles.
For companies, this delay in turnover can also slow down the organization’s growth, keeping it from staying competitive. No one wants to be in a situation where people are holding on to their jobs out of financial necessity instead of transitioning gracefully into retirement.
Why Target Replacement Ratios Matter More Than You Think
When it comes to retirement, everyone talks about the target replacement ratio—but for high earners, this number takes on a whole new level of importance. Sure, if someone’s making $50,000 a year, their Social Security and 401(k) contributions might cover them just fine in retirement. But if you’re pulling in $150,000 or more, things get tricky. Even if you max out your 401(k) or 403(b) contributions, you’re still looking at a significant gap between your pre- and post-retirement income.
That’s where executive benefits come in, bridging the divide between what you have and what you need. Without these benefits, many high-paid employees will be forced to dig into their savings or delay retirement entirely—exactly what we’re trying to avoid.
The 457 Plan: Your First Line of Defense
Let’s talk about solutions, starting with the 457(b) and 457(f) plans. These non-qualified retirement plans give organizations a way to help their top execs save beyond the limits of traditional retirement plans like 401(k)s or 403(b)s. The 457(b) is great for providing some extra financial cushion, while the 457(f) plan kicks things up a notch by offering additional compensation, often with a catch—like having to stay with the company until you’re fully vested.
While 457 plans are a great start, they’re not the silver bullet. Sure, an extra $23,000 a year sounds nice, but when you’re making $500,000 or more, it’s barely enough to move the needle. These plans are popular because they’re easy to implement and offer some tax advantages, but they may not lock in your highest-paid talent long-term. You might need something stronger to make sure your top execs stick around.
Split-Dollar Plans: The Ultimate Handcuffs for Top Talent
If 457 plans are the appetizer, split dollar plans are the main course. These plans are specifically designed to retain your top talent by offering significant, long-term benefits. Essentially, the company loans money to the executive to purchase a life insurance policy, and that policy becomes the foundation for their retirement. Unlike 457 plans, which can be limited and taxed heavily, split-dollar plans are built to provide more flexibility and stability.
What makes split dollar plans unique is that they’re recoverable loans, meaning the company gets its money back, plus interest, when the executive passes away. This makes them a much more attractive option from a financial perspective—both for the company and the executive. And because these plans offer major tax benefits and aren’t subject to certain excise taxes, they’re becoming increasingly popular in industries where talent retention is critical.
But let’s be real: Split-dollar plans aren’t for everyone. They’re complex, require significant legal documentation, and you need a relatively healthy executive (or their spouse) to make it work. For the right people, these plans are golden handcuffs—keeping your top execs tied to the organization while ensuring they have a solid retirement package waiting for them down the line.
Executive retirement benefits might seem complex (and let’s be honest, they are), but when structured correctly, they offer organizations a powerful tool for attracting, retaining, and rewarding top talent. Whether it’s through 457(b) or 457(f) plans or more specialized options like split dollar plans, these benefits ensure that your key executives can retire comfortably without putting unnecessary strain on the organization.
The key takeaway? If your highly compensated employees can’t afford to retire, you’re going to end up paying for it—both literally and figuratively. By leveraging the right mix of executive benefits, you can keep your organization competitive, reduce turnover costs, and help your top earners transition into retirement on time. Contact our team with more specific questions or if you’re interested in talking about your team’s specific needs.