Total Rewards and Executive Benefit Benchmarking

Fulcrum Partners provides targeted focus on the strategic integration of executive compensation and benefits. A cross-disciplinary approach addressing all current and deferred pay elements makes your organization stronger, more competitive, and can be the differentiating edge in your total rewards strategy that today’s business demands.

Large organizations like yours often rely on compensation consultants to advise Board Compensation Committees regarding appropriate levels for base salaries, short-term incentives, long-term incentives, and equity compensation. Benchmarking a comparator group of organizations, often with guidance by the compensation consultant or from specialized database resources, yields insightful data about compensation.

Yet missing from this benchmarking data are the projected values of an organization’s contributions to the comparator group’s executive benefit programs through 401k and deferred compensation plan contributions, supplemental retirement plans, restoration plans, and all other qualified and nonqualified plan offerings. (See: Executive Benefit Benchmarking)

Corporate abuses such as those of Enron, WorldCom, and the NYSE/Grasso severance controversy heightened the scrutiny and legislative action aimed at executive pay practices. Specifically, Sarbanes-Oxley, IRS Code Section 409A, and other regulatory developments shed light on cash and equity compensation, on benefits in general, and deferred compensation in particular. These changes create greater transparency and disclosure. They lead to the logical inclusion of benefits and perquisites in the calculus of a “Total Rewards Strategy”.

Executive Benefits Plans

Attracting, retaining, and rewarding executive talent is essential for your organization’s competitive positioning. For this reason, you will likely choose to sponsor nonqualified executive benefit programs, such as Deferred Compensation Plans (DCPs), Supplemental Executive Retirement Plans (SERPs), Pension Restoration Plans, 401(k) excess plans, and Executive Life Insurance Plans. These types of plans afford great flexibility for meeting your company’s Total Rewards goals and objectives. For executives, tax-deferred savings and earnings can be an effective strategy to accumulate wealth.

At Fulcrum Partners, our due diligence always includes review and evaluation of your existing executive benefit structures. We then advise you as the sponsor on strategies to better integrate executive benefit plans with your overall Compensation objectives. Upon request, we also provide benchmarking for your sponsor plans against both your designated comparator group and against best practices. (See: Executive Benefit Benchmarking) After plan due diligence, benchmarking, and analysis, we then assist plan sponsors in designing alternative strategies to fulfill total rewards objectives.

Fulcrum Partners will facilitate a formal RFP for plan administration and recordkeeping services, or we will coordinate for you directly with the synergistic service providers. We maintain close relationships with all major national TPA providers and stay current on all technology and other resource advances available in the marketplace.
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Executive Compensation

When you, as a plan sponsor are ready to integrate Executive Benefit Plans into your comprehensive Total Rewards Strategy, you may find your executive compensation structure requires updating. For example, if a portion of current compensation is redirected to a performance based, longer term approach, or if you elect to integrate the stock plan with your deferred compensation plan (for post-vesting tax deferral), you will be best served when your compensation and benefits consultants work in harmony. Fulcrum Partners maintains close relationships with many leading executive compensation consulting firms, and will coordinate as necessary at the sponsor’s request.

Executive Benefits Benchmarking

Most publicly traded and large privately held companies rely on executive compensation firms or independent data vendors to provide information on compensation comparisons. This data is critical. It enables both management and board members to align their executives’ compensation with the organization’s peer group, its geographical competitors, or other comparative criteria. Typically, compensation benchmarking compares base salary, annual incentives, cash incentives, and equity compensation.

Missing from this cash and equity benchmarking data is the relative and absolute value of the executive benefit plans. While cash and equity values within a peer group tend to be closely related to one another, there are broad disparities in the value of organization paid benefit plans (organization match, performance based supplemental contributions to deferred compensation, and defined benefit SERPs). These values are often overlooked or not considered by Compensation Committees because the data is not requested nor provided to them by their compensation consultants.

At Fulcrum Partners, we assist our plan sponsors and Compensation Committees in identifying executive benefit cost disparities and then measure the long-term values in terms of income replacement ratios and absolute dollar retirement benefits. Shedding new light on the value of the Total Rewards Strategy, this deliverable has a material impact on your organization’s competitive positioning.

The professionals at Fulcrum also incorporate a benefits benchmarking study on either a standalone or comprehensive executive benefits project. At Fulcrum, we consider executive benefits benchmarking to be the most impactful enhancement in recent history to our clients’ understanding of Total Rewards. It is information that is critical in decision making for both management and boards alike and it is information your organization needs in hand.
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Statement of Benefits Policy

In addition to filling gaps in a company’s benchmarking data, Fulcrum Partners consultants help your company’s Compensation Committee and senior management articulate your philosophy of executive benefits. This articulation is often missing from a company’s Compensation Discussion and Analysis (CD&A), even though it is required. Having a clear statement of executive benefits philosophy aids in attracting and retaining your key people and establishes good communication with your shareholders.

Once the company leadership has agreed on its philosophy, the design of an appropriate, competitive, and efficient executive benefits program is implemented.

Institutional Financing

Your corporation has many financing options for executive benefits and other types of nonqualified deferred income liabilities, but without professional guidance, your funding strategies may be only adequate in an environment that calls for maximum efficiency.

Corporate Owned Life Insurance (COLI)

Fulcrum Partners is recognized in the industry as one of the largest independent distributors of Corporate-Owned Life Insurance (COLI) in the United States.

COLI is an institutional life insurance product your corporation may purchase to cover a select group of your management, with the purpose of financing executive benefit plans and other corporate liabilities. COLI policies are long-term vehicles that may be helpful in your tax planning strategy.

The professionals at Fulcrum Partners provide a wide variety of general account and separate account COLI products from the majority of the top-rated insurance carriers. Your Fulcrum consultant focuses on your organization’s specific business objectives, participant demographic, and timing of plan distributions, and then uses customized financial models to determine with you whether COLI is an effective hedge against long-term benefit plan liabilities.

Signed into law on August 17, 2006, the COLI Best Practices Provision of the Pension Protection Act of 2006* codifies industry “best practices” regarding the use of COLI. Fulcrum Partners’ consultants are specialists in the COLI Best Practice provisions and work to ensure that these best practice conditions are fully compliant with all statutory requirements.

*The website links referenced are provided as a courtesy. Neither Fulcrum Partners nor NFP Advisor Services, LLC are liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of the links provided.

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Bank Owned Life Insurance (BOLI) and Insurance Company Owned Life Insurance (ICOLI)


Successful financial institutions with excess cash face numerous investment decisions, including that of reinvesting in the business, paying a dividend, repurchasing stock, or investing the cash for later use. Specially designed life insurance policies have become popular as alternative vehicles. The tax-deferred growth of policy cash value and the ultimate tax-free receipt of death benefits paid make Bank Owned Life Insurance (BOLI) an attractive financing strategy that can produce favorable earnings and long-term yields. These policies will also provide your organization the ability to finance supplemental executive benefits such as pre-retirement death benefits, and to fund employee benefit programs in a tax-efficient manner.

BOLI as an Alternative Financing Strategy

Bank-Owned Life Insurance (BOLI) has become the prevailing tool for offsetting the rising costs of employee benefits. Fulcrum Partners provides a variety of products designed with our institutional insurance carrier partners to meet bank needs while offering competitive yields. Our BOLI consultants help create a portfolio that suits a bank’s investment philosophy and meets the necessary regulatory compliance and documentation requirements.

BOLI and Executive & Director Benefit Planning

To assist banks in recruiting, retaining, and rewarding key employees, Fulcrum Partners offers consulting on a wide array of nonqualified benefit plans. Programs including supplemental retirement plans, performance-driven retirement plans, and welfare benefit plans provide key employee benefit solutions in addition to enhancing shareholder value. These programs help restore deficiencies in existing retirement programs, create management incentives, and upgrade director benefits.

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Insurance Company Owned Life Insurance (ICOLI)

Similar to Bank-Owned Life Insurance (BOLI), Insurance Company Owned Life Insurance (ICOLI) encompasses all life insurance that an insurance carrier purchases and either owns or in which it has a beneficial interest. Like banks, life insurance and property and casualty insurance companies may purchase life insurance on the lives of directors, officers, and key employees with the insurance organization as owner and beneficiary of the policies. These institutionally priced policies can help the insurance organization recover all or a part of the costs of its employee compensation and benefit programs, while diversifying investment holdings across all style sectors within these tax structured products.

Unlike most traditional insurance carrier investments that create taxable interest or investment income (other than tax-exempt municipal bonds), ICOLI results in no current income tax liability for the earnings generated each year. Earnings remain permanently tax deferred inside the policies as long as the contracts remain in force and properly managed.

Death proceeds accrue tax-free to the policy owners from properly structured contracts. By reinvesting funds from traditional portfolio investments into ICOLI, insurance carriers may be able to increase their yield by 100 to 350 basis points depending upon marginal tax rates, the size of the transaction, the type of policies selected, and the demographics of the key employees to be insured.

VEBA/FAS 106 (ACS 715) Liability Funding

Organizations may look to alternative financing structures to offset or mitigate the growing liability of carrying employer maintained, post-retirement benefit plans, which are required to be recognized as liabilities on the organization’s balance sheets, in accordance with FAS 106 (ACS 715). Financing approaches may include traditional pay as you go, or  the implementation of formal arrangements such as a 401(h) account; a 501(c)(9) – VEBA Trust; or the utilization of informal funding methods including Trust Owned Life Insurance. These strategies often allow an organization to recognize deductions of employer contributions as they occur and ultimately may recover the cost of the FAS liability.

ESOP Funding

An Employee Stock Ownership Plan (ESOP) is a qualified, defined contribution, employee benefit plan subject to ERISA, IRS, and DOL oversight. The consultants at Fulcrum Partners can coordinate all resources for the design, implementation, and communication of an Employee Stock Ownership Plan, as well as support you with the knowledge and resources you need to understand and evaluate the tax advantaged financing techniques of the repurchase obligation.

For owners of privately held companies, an ESOP can be a valuable tax advantaged strategy to help capitalize the organization, or allow the owner to exit the business gradually or immediately. The ESOP creates a ready market for the stock of closely held businesses while, it simultaneously helps motivate, retain, and reward employees.

As a qualified retirement plan, an ESOP allocates stock to a participant’s account after the stock is purchased from shareholders. The stock must be repurchased by the corporation from the participant accounts when certain trigger events occur, such as death, disability, retirement, or termination of employment. The organization is required to fulfill the “repurchase obligation” at fair market value, and in the case of death, disability, or retirement, must begin no later than the plan year following the event. In the early years of an ESOP, the repurchase obligation is typically insubstantial. As the number of shares in the ESOP increases and as the shares rise in value, the repurchase liability can grow significantly, creating cash flow strains for the you as the plan sponsor.

At Fulcrum Partners, we have the specialized knowledge needed to evaluate the tax-advantaged financing techniques to fund the ESOP repurchase obligations.
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Pension Risk Transfer

Sponsors of defined benefit plans are aware that annuities must be provided for or offered to plan participants in the event of plan termination. These annuities, which are offered only through an insurance carrier, are intended to guarantee benefits earned under the plan. However, many plan sponsors are not aware that annuity-based products can also play a role in managing risk in active and frozen plans. When plans become adequately funded, you may find it highly useful to consider the merits of an immunization strategy that is based on a partial risk transfer, given the volatility in pension plan funding levels, accounting expense, and ongoing contributions.

Partial risk transfers occur by removing a portion of the assets and liabilities from a plan (for example, those of retired employees) by settling them with the purchase of a group annuity contract from an insurance carrier. The settlement of liabilities for a large group of employees transfers investment and interest rate risk, as well as mortality and early retirement risk, to the insurance carrier.

Partial risk transfers require fiduciary oversight and call for thorough scrutiny. Our relationship with various insurance carriers familiar with this type of transaction makes the professionals at Fulcrum Partners well positioned to assist plan sponsors with the proper analysis and implementation of this strategy.

Advanced Human Resources

Traditional Human Resource services sometimes overlook effective alternatives for expanding your organization’s offerings to your executives. Fulcrum Partners brings you sophisticated solutions you’ll find mutually beneficial for both your executives and your organization.

Executive Life and Disability Benefits

If only life were predictable… but since it’s not, your organization may find offering Executive Life and Executive Disability benefits to be both attractive and prudent.

Executive Life Benefits

Often, when the death of a key executive occurs, it triggers immediate vesting and disbursement of many pay elements, including stocks, severance, and deferred compensation. Such a compressed payout schedule can place a significant cash flow strain on corporate accounts. Supplemental Executive Life coverage removes cash flow disruptions and creates immediate liquidity for a corporation and for the executive’s family.

Executive Disability Benefits

Supplemental Disability Plans are a popular benefit offered to executives and other highly compensated employees. The sponsor or the executive may pay for the plan or both may share the costs. Reasons a company offers this type of benefit include:

  • Low maximum benefit amount in the group LTD plan
  • Transfer of risk from the group LTD plan (both insured and self-insured)
  • Desire to offer similar income replacement to all employees
  • Ability to cover bonus compensation
  • Access to stronger benefit definitions and coverage levels than with typical group LTD plans
  • Adding a way to recruit and retain key employees
  • And a way to meet employment agreement obligations

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Extraordinary Risk Management

Many companies have the need for short-term coverage for life or disability during a select or predetermined set of circumstances. Examples of such situations include times when key executives are traveling together for conferences, retreats, or other types of business travel; coverage provided during M&A negotiation and closing periods, or during Pre-IPO illiquidity periods. Another example of when special life and disability coverage for Extraordinary Circumstances might be necessary would be during times of travel to known hazardous areas.

The professionals at Fulcrum Partners can provide your company unique short-term insurance coverages for select circumstances quickly, simply, and with limited underwriting requirements.

Adding Voluntary Benefits to Your Executive Benefits Program

Enriching your offerings with select Voluntary Benefits is an ideal way for your organization to strengthen its executive benefits program without adding additional costs to your organization. Typically, Voluntary Benefits programs are fully insured plans from A-rated insurance carriers and have low participation requirements, making them well suited for inclusion in your cafeteria plan of benefits or for you to offer as a standalone benefit.

  • Life Insurance
  • Short- and Long-term Disability
  • Long-term Care
  • Critical Illness
  • Dental
  • Vision
  • Legal Services, and other types of similar benefits

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Securities offered through ValMark Securities, Inc. Member FINRA, SIPC, 130 Springside Drive, Suite 300, Akron, OH 44333-2431, Tel: 1-800-765-5201. Investment Advisory Services offered through ValMark Advisers, Inc., which is an SEC Registered Investment Advisor. Fulcrum Partners LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

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