NQ Plans Prevalent at Tax-Exempt Health Care Organizations

Executive benefits continue to be a strategic component of total rewards programs for health care executives, Mercer finds.

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.

NEXT: Non-retirement benefits.

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.