The
office will be headed by Stephen Schott, managing principal; Heidi Spencer,
director of client services; and Drew Dinkmeyer, senior investment analyst.
Administrative support will be provided by Jennie Janczewski.
CapTrust is a privately held, independent, investment
consulting practice headquartered in Tampa, Florida, with consulting offices in
Miami and Bonita Springs, Florida. The Miami office’s phone number is (305)
892-0420.
The American Taxpayer Relief Act of
2012, while keeping federal income tax rates the same for almost all Americans,
significantly increased ordinary income and capital gains rates for executives
and other high earners. By raising the threshold at which top rates apply, the
Act makes deferring compensation attractive, because there is more likelihood
the compensation may be subject to tax at lower marginal rates when it is
received, a PwC HRS Insights report says.
“Qualified plans are the most
beneficial vehicle for deferring compensation from a tax benefits perspective,”
Joe Olivieri, a managing director in PwC’s Human Resource Services practice,
PLANADVISER. There is no tax at the time of deferral, the amount is taxed
upon distribution, and there is flexibility for when an executive can take his
money from the plan. In addition, employers get a deduction for contributions.
Olivieri explained that if the
deduction is attractive for an employer, it may want to consider bumping up its
company match contribution to help executives—as well as other
employees—accumulate more retirement income that will be taxed at a lower
rate.
Under prior law, taxpayers were subject to a maximum tax
rate at incomes of $250,000 and above, but now the maximum federal income tax
rate increases to 39.6% for joint filers with adjusted gross income (AGI) above
$450,000. Many executives expect to continue receiving income of at least
$250,000 during retirement because of income available to them from sources
such as their retirement plans, board service or consulting opportunities. With
the maximum tax rate at that level, deferral of compensation until retirement
would have provided only limited tax savings because the compensation would
likely be taxed at the same rate at the time of receipt as at the time of
deferral.
(Cont’d…)
Olivieri said most executives who
receive compensation above $450,000 do not expect to receive that much in
retirement, making deferral more attractive. Employers might be more willing to
provide forms of compensation that allow employees some choice as to when they
will take the amount into income, and to adopt and expand other deferred
compensation programs. In the past, rather than deferring compensation,
executives frequently chose strategies to recognize income earlier, and then
convert it to tax-advantaged investments.
In cases where qualified plans are
utilized to the maximum extent possible and executives desire further deferral
opportunities, nonqualified deferred compensation (NQDC) plans are still a good
idea, but Olivieri pointed out that these plans do not offer as much
flexibility for timing of distributions, and the tax deduction for deferred
amounts is delayed.
The PwC paper suggests employers may
also consider forms of compensation that allow for more of a deferral
opportunity, such as restricted stock units (RSUs) rather than restricted
stock. Unlike restricted stock, which is taxed at vesting (unless the employee
made an 83(b) election to be taxed at grant), RSU programs may allow the
employee to timely elect to delay payment (and income tax) until retirement or
until a year when they expect their marginal tax rate to be lower. However, any
deferral of the tax event for the employee would correspondingly delay the tax deduction
for the employer. Still, deferring execution of RSUs could be beneficial to
executives, Olivieri said.