NQ Plans Prevalent at Tax-Exempt Health Care Organizations

Nearly two-thirds (63%) of tax-exempt organizations offer top executives an employer-paid nonqualified retirement plan, according to Mercer’s 2014/2015 Health Care Executive and Physician Benefits and Perquisites Report.

For large health care organizations (more than $500M of revenue), prevalence jumps to more than 75%. The value of these plans can be significant, providing as much as 15% to 20% of annual base salary.

Among all organizations, 45% offer a supplemental executive retirement plan (SERP) to top officers, 39% offer a SERP to direct reports to top officers (Tier 1 executives), and 22% offer one to direct reports to Tier 1 executives (Tier 2). Ten percent provide a restoration plan (offering the same contribution formula as an underlying qualified plan without Internal Revenue Service (IRS) limits) to top executives, 10% to Tier 1 and 8% to Tier 2. Eight percent, 7% and 4% offer both SERPs and restoration plans to the different executive groups, respectively.

“When properly designed, executive benefit programs provide a vehicle to make up for equity pay often available to executives at public companies,” says LaCinda Glover, Principal with Mercer’s Executive Benefits Group.

The study of more than 200 health care organizations across the U.S. also finds non-retirement benefits, such as employer-paid executive life insurance and long-term disability (LTD) coverage, continue to be popular among health care organizations. Approximately 50% of organizations offer supplemental employer-paid life insurance to executives with median total coverage of 300% of base salary. Furthermore, more than half (53%) of organizations provide additional employer-paid LTD coverage through a supplemental group plan or an individual policy. Coverage is typically 60% to 70% of base salary with a total median maximum monthly benefit of $20,000.

While executive perquisites are becoming less prevalent in general because of transparent Form 990 reporting and scrutiny from the media, those perquisites treated as a business expense continue to remain popular. Mercer’s study finds the most common perquisite for executives to be a car or car allowance, provided by 35% of organizations. Financial counseling/tax advice and country club memberships, offered by 10% of organizations, are the second most popular followed by a perquisite allowances and in-depth executive physicals (8%).

“Perquisites without a valid business purpose are a thing of the past,” says Glover. “Whereas perquisites used to be a sweetener added on to executive compensation packages, only those pertaining to the efficiency and well-being of executives are becoming acceptable.”

Physicians typically receive the same benefits as all other employees with limited additional employer-paid retirement benefits, health and welfare benefits, and perquisites. Of the organizations that provided information about their physicians, approximately half (49%) of physicians are eligible for additional voluntary employee deferrals through a 457(b) plan. Nonqualified employer-paid plans are much less prevalent; of the 20% of organizations providing them, most restore contributions lost in the qualified plan due to IRS limits on compensation and benefits.