Electric cooperatives are critical to their communities, and holding on to talented leaders is a priority. For many co-ops, deferred compensation plans are an additional tool to attract and retain both key managers and co-op board members.
Over 350 cooperatives use Homestead as the registered investment company for their deferred compensation plans (primarily salary deferral 457(b) and “Top Hat” plans). Deferred compensation plans help co-ops motivate and retain executives, because they allow participants to defer income above and beyond what is provided through qualified plans, such as a 401(k). More specifically, deferred compensation plans can:
- Make executive compensation more competitive
- Provide a meaningful tax break since contributions to these plans reduce taxable income
- Offer an additional retirement savings vehicle, especially for highly compensated employees
Together, NRECA and Homestead Funds provide cooperatives with deferred compensation turnkey programs for both tax-exempt and taxable cooperatives.
How do you set up a deferred compensation plan? Your first step is to speak with the NRECA Deferred Compensation Team about your goals, plan eligibility, required documentation and administration. Following plan establishment, Homestead representatives will work with you to establish your accounts. We will also be there to answer questions, help eligible participants make investment choices (if provided for in your plan) and report on changes in account value.
Over many decades of working with cooperatives, we have seen deferred compensation plans used to address a variety of common co-op challenges:
- When executives can’t contribute the maximum to their 401(k) plans, deferred compensation plans can be used to restore that amount and fill the gap.
- Often co-op board members prefer to defer current compensation to reduce their immediate tax liability. Deferred compensation plans can assist members with that goal.
- When highly compensated executives meet the maximum on their 401(k) contributions and have additional compensation to invest, deferred compensation plans can provide another tax-deferred retirement savings vehicle. And funds are not subject to an early withdrawal penalty like other retirement plan and IRA options.
If you want to establish a deferred compensation plan at your cooperative and have eligibility and administration questions, you can contact NRECA’s Deferred Compensation Team at firstname.lastname@example.org.
If you already have a plan and want to set up accounts for employees or discuss existing accounts, contact us.