By Cyril Tuohy
The Principal Financial Group has introduced a modified cash surrender value rider available with the company’s Executive Variable Universal Life II policy as a way to help small and midsize employers attract top talent.
The rider was launched in the wake of research showing that retaining top executives remains a challenge for small and midsize employers. The new feature offers more choice and flexibility for employers looking to finance their nonqualified deferred compensation (NQDC) plans, the company said.
“Adding this rider to our current product can bring stronger cash values plus extensive investment options to more small to midsized business than are available today,” said Gary Dorton, Principal Financial's vice president for nonqualified solutions.
NQDC plans are tax-deferred, employer-sponsored retirement plans that fall outside of Employee Retirement Income Security Act guidelines.
The average age of an NQDC participant is 54 years old, and 48 percent of NQDC participants hold senior or executive-level positions, according to Principal Financial’s “2013 Survey of Nonqualified Deferred Compensation: Spotlight on Plan Participant.”
With the economy slowly growing and unemployment dropping, the economic winds appear to be shifting in favor of growth. But in order to grow, businesses find they need to compete to attract top managers.
“Our nonqualified platform continually evolves to help meet the needs of employers of all sizes, allowing them to recruit, retain, reward and retire key employees in today’s competitive market,” Dorton said in a news release.
According to The Principal Well-Being Index, 57 percent of business owners said growing their business was a challenge, and 43 percent identified retaining talented employees as one of their top challenges.
NQDCs are financed using one of three options, John Baergen, Principal Financial's vice president of executive benefits consulting, said in a Web posting: Companies finance NQDCs through a pay-as-you-go method, taxable investments or through corporate-owned life insurance.
The company said that when its Executive Variable Universal Life II is used with the new rider, employers benefit from greater flexibility to finance NQDC plans, higher cash surrender values, more than 100 investment options and comprehensive administrative services.
Executive VUL II is a form of corporate-owned life insurance in which the benefits are payable either to the employer or to an employee’s family, Principal Financial said. Companies pay the premium but are also the plan’s primary beneficiary.
Corporate-owned life insurance offers tax advantages to finance NQDCs due to tax treatment of life insurance products under the IRS tax code, Baergen said.
Employers with high tax rates are attracted to NQDC financing through the corporate-owned life insurance option, Baergen said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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