Deferred Compensation Programs

Deferred Compensation Programs Frye Financial Center The answer to plan limits on Retirement Savings

The Frye Financial Advantage Unmatched benefit plan expertise…Superior servicing Attracting, Rewarding and Retaining Executive & Top employees through Deferred Compensation Programs Frye Financial Center

The answer to plan limits on Retirement Savings Nonqualified Deferred Compensation Plans Looking for a powerful tool to attract, reward and retain key employees? In the case of highly compensated employees, sometimes a qualified defined contribution or defined benefit plan just isn’t enough. You need an integrated offering that suits your whole company, including those key people. While satisfying everyone sounds like a daunting concept, Frye Financial Center can help you. As retirement plan specialists with more than 25 years of experience providing workplace solutions, Frye Financial Center can help your executives with strategies aimed at gaining greater income for retirement while avoiding high tax brackets today. You will gain a powerful tool to attract, reward and retain key players. Frye Financial Center

Benefits to your top employees & executives Our consultants will work with you to design a supplemental executive retirement plan that delivers retirement benefits commensurate with executive pay Many executives cannot allocate as much money as they would like into their 401(k) accounts. Contribution rates for other employees under the 401 (k) plan may be low, so the IRS ceiling is lowered even further for the executives. Highly compensated individuals who need to replace 75-80% of their retirement income to retire comfortably, cannot do so with this level of contribution. They need another funding source. Frye Financial Center

How does your company benefit from a deferred compensation plan? Powerful recruiting & retention aid • Reduce current income taxation of the executives/participants • Increase retirement income levels for these participants, especially over qualified plan limits • Provide “golden handcuffs”-incentives for executives to remain at the company • When hiring a mid-career executive, replace pension benefits lost under his/her prior plan • In a closely-held corporation, offer major shareholders a way to get money out of the business in a deductible fashion (deferred compensation) rather than as a non-tax-deductible dividend distribution. • Allow a business to select certain employees for early retirement by offering them supplemental nonqualified benefits The executive gains tax deferral and supplemental retirement income- The corporation gains the executive’s long-term commitment to its success. Frye Financial Center

An array of plan options • Depending on your participants’ needs, Frye Financial Center can help you choose from an array of plan options that provide additional future income to key employees. We’ll help you address common issues while assisting you with designing your plan, such as whether or not: • The plan will allow deferral of both salary and bonus • The company will offer a match • The plan will allow participants to allocate a part of the deferral for other future needs, such as a child’s education or a special vacation • The supplemental retirement plan benefits will be forfeited upon termination prior to retirement. Frye Financial Center

Types of Plans Elective Deferral 401(k) Mirror Plan SERP A “true” deferred compensation plan. The employee takes less income in a given year, in return for the employer’s promise to pay that amount (plus some measure of growth) at a specified time in the future. These plans help reduce the executive’s current taxable income, and increase his/her income for retirement or other future needs. Hybrid plan-participants defer some current income and the company matches some portion of that deferral. These plans mirror 401k plans to include a limited range of investment options that are similar to their 401k plan options. With a 401k mirror plan, the employee reduces current taxable income and increases income for retirement or other future needs. The company may get the golden handcuffs it wants through a vesting schedule on the matching portion. These plans provide an additional benefit to the employee at some specified time in the future. This benefit is funded entirely by employer dollars, and there is no “give up” by the employees. SERPs are sometimes referred to as salary continuation plans. These plans increase the executive’s retirement income, and may give employees a strong incentive to remain at the company (since benefits could be forfeited by resignation). 1 2 3 Frye Financial Center

Eligible Employees Most employers try to avoid as many of the ERISA reporting and disclosure requirements as possible. The easiest way to accomplish this is to qualify for the Top Hat exemption for nonqualified plans. There is no clear guidance on which employees fit under that exemption. Practitioners usually look to the decision makers in the company (those who, it could be argued, have enough information about and influence over how the company operates to not need the full range of ERISA protection). There is no easy compensation figure to apply to determine who is “highly compensated,” although the qualified plan $80,000 figure is often cited as a bare minimum. Experts also suggest no more than 5-10% of the total employee base be eligible. Frye Financial Center

Plan Financing How you choose to finance your deferred compensation or supplemental retirement plan is up to you. Frye Financial Center provides advisory services that help you understand each of your options before you choose one. Nonqualified deferred compensation and supplemental retirement plans are promises to pay benefits in the future. Under generally accepted accounting principles, the company begins to accrue a liability today for those promised payments in the future. Here are some financing options: 1. Leave it unfunded The company accrues the deferred liability, and also sets aside dollars into investments to grow an asset to “match” 2. Buy life insurance The company accrues the deferred liability and purchases life insurance to grow an asset to “match” that liability. The insurance features tax-deferred growth of values, tax-free movement among funds inside the contract, low-cost access to the values as a source of cash for benefit payments in the future and protection against early death of a participant. A properly structured plan can recover costs of the program (benefits, premiums, administrative costs) in the future. 3. Invest in securities products/Rabbi Trusts The company accrues the deferred liability, and also sets aside in dollars into investments to grow an asset to “match” against the liability. A Rabbi Trust is an irrevocable trust used to fund deferred compensation benefits for key employees. It is often used as a vehicle for providing long-term stock ownership incentives to motivate and retain key executives as well as a means for deferring taxable income. In addition, they can be tailored with flexibility to fit precise objectives and be targeted for specific employees or group of employees. Frye Financial Center

Plan Financing • The benefits of a Rabbi Trust: • No limits on plan contributions (subject to plan design) and no minimum distribution requirement • Exempt from most ERISA requirements and discriminatory • Reduce current income taxation of the executives/participants. • In a closely held corporation, offer major shareholders a way to get money out of the business in a deductible fashion (deferred compensation) rather than as a non-tax deductible dividend distribution. • A Rabbi Trust puts a fence around certain assets held in the trust. This fence restricts the use of those assets to the payment of plan benefits, with the exception of bankruptcy or insolvency. • A Rabbi Trust is a “grantor” trust, and is treated like an asset of the employer. The trust has no separate tax status; its activities are included in the sponsoring company’s tax return Frye Financial Center

Frye Financial Center will walk you through each phase of your Nonqualified Deferred Compensation Program Identifying goals Analyzing P&L Impact Defining participant population Selection of funding method Selecting or Designing a Plan Installing the Plan Transitioning an Existing Plan Supplying specimen legal documents Establishing the trust Setting up employee enrollment services(for defined contribution plans) Setting up benefit calculation services (for defined benefit plans) Revisiting plan objectives Assist in selecting matching investment funds or life insurance coverage Help in updating legal documents Transferring existing funding to appropriate providers Communicating to Participants Administration In cooperation with chosen provider: Management financial reporting Participant statements Benefit payment services Annual actuarial valuation Voice response/internet Providing educational enrollment/transition packages Conducting on-site enrollment meetings Frye Financial Center

Extensive Administrative Support • Plan Installation • Since executive benefit plans may have ERISA implications, it’s critical to ensure that documents are filed with governmental entities. We can help by providing support in these areas: • A sample Department of Labor letter to be used if the plan qualifies for the “Top Hat” exemption and thus can minimize the reporting and disclosure requirements under ERISA. • A sample Board of Directors’ Resolution for use as a model by your company’s counsel. This puts the rationale for the plan into the corporate minutes and authorizes the corporate officers to proceed with the plan. • Sample plan documents for review by your company’s attorneys. • A Rabbi Trust can help protect a participant’s accounts from an unfriendly takeover of the company or a change in management. It does not protect participants from company bankruptcy. A document is available for review by your counsel. • An Implementation Checklist to streamline the plan installation process. Frye Financial Center

Extensive Administrative Support • Enrolling or transitioning participants into your plan • Whether you have an existing plan with Frye Financial Center or you are implementing a new plan, we will have a transition team who will streamline the transition/enrollment process to make a smooth and efficient transition/installation . Specialists often perform the records conversion in a single day, providing continuous access to employee accounts. You’ll get: • A dedicated transition manager, relationship manager and full team of transition experts • Plan design assistance • Transfer of records, assets and reconciliation • Consulting and advisory services • Sample documents Frye Financial Center

Extensive Administrative Support Communicating with employees You’ll want to communicate with participants about their new benefits during and after the enrollment process. Participants will be provided with easy access to plan information that helps increase awareness and appreciation of their plan. ENROLLMENT Enrollment packages On-site enrollment meetings Investor education materials POST ENROLLMENT Quarterly participant financial statements Toll-free telephone access Secure, private website customized for participants that offers an interactive snapshot of their retirement plans, along with other custom content. Frye Financial Center

Recordkeeping & Technology Extensive Administrative Support Once your plan is in place, you can count on it working seamlessly. Our administrative services are designed to help you and your participants with the following: • Simple, state-of-the-art recordkeeping systems • A secure, private sponsor website for non-qualified plan information and investment performance, providing you with instant access to plan and participant information right from your PC • Automated plan tracking that allows you to fine-tune your non-qualified and other accounts, updated daily by provider To make your life easier… Frye Financial Center’s in house professional benefits and consultant team is available at all times to assist with: • Event distributions • Scheduled in-service withdrawals • Current and terminated beneficiary maintenance • Eligibility & other plan related questions Frye Financial Center

Why choose Frye Financial Center? A helping hand every step of the way • Professional in-house retirement plan specialists to provide streamlined record keeping and full support for easy administration • Helps you manage multiple plans efficiently • In-house ERISA specialists and attorneys to customize your plan and ensure it remains compliant with all regulations and requirements • With your nonqualified deferred compensation retirement plan, as with your qualified 401k or pension plan, we will help you every step of the way. You’ll get one dedicated client service team who will focus specifically on your business to make sure your programs work. From planning to transition to implementation to future growth, we provide service that’s personalized, responsive and cost-effective. By expertly meeting our clients’ day-to-day needs, Frye Financial Center can help them achieve their long-term objectives. Frye Financial Center

Frye Financial Center provides unique expertise to help maximize tax advantaged benefits to your top employees • Has your 401(k) plan failed testing requirements and have you had to lower your higher paid employees plan contributions? • Unlike others, new to the field, Frye Financial Center, with its ERISA and testing expertise, can help ensure that your plan will pass testing requirements. We can also provide ways, such as “Safe Harbor Plans” to maximize top employees tax deductible plan contributions. • We can customize a deferred compensation program to help you attract and retain top employees. This is becoming an increasingly popular employee benefit at the executive level and Frye Financial Center can show you exactly how a deferred compensation plan (sometimes known as a Rabbi Trust) can truly benefit your firm and your top employees. Frye Financial Center

FRYE FINANCIAL CENTER 20900 West Dixie Highway Aventura, FL 33180 305-931-3200 office 305-931-9383 fax www.fryefinancial.com Creating, Protecting & Preserving Wealth

Deferred Compensation Programs