Case Study: Customized Retention Plan

Ownership of a privately-held tech company was interested in establishing a customized, performance-based retention fund that would vest to certain key employees over a 5 to 7 year period of time. Our Executive Retention & Retirement Solutions team helped design a non-qualified executive retention program with the following plan design features:

• Since growth was a key metric for ownership, a contribution formula was designed to factor in the year over year increase in sales. A second, discretionary contribution amount was based on net profit over the same 12 month period;
• Once the total fund amount was determined, a percentage was credited to each executive’s account based on their position and tenure with the company;
• A rolling 7 year vesting schedule was adopted;
• Income taxes are deferred until the executive leaves the company, and payment elections could be made as a lump sum or annual installments;
• The executives could also elect to defer a portion of their base salary and bonuses each year (and associated income taxes) to supplement the company-paid account;

The client also engaged us to draft the necessary 409A-compliant plan document and the Department of Labor registration statement, and asked us to source an experienced plan administrator and funding specialist to communicate and implement the plan. We also provided financial planning services to assist the individual executives with their overall retirement and wealth management plan.