Retirement plan scrutiny heightened.

• Author: Marshall, Jeffrey
• Position: Compensation

The furor over former New York Stock Exchange Chairman Richard A. Grasso's $140 million retirement pay package, consultants say, assures that retirement plans will be getting more corporate scrutiny, and more disclosure, in the months ahead.

Ironically, the Grasso flap was touched off after the NYSE voluntarily disclosed the package. But as it was picked apart amid an avalanche of news stories over several weeks, it came as a shuddering reminder to corporate boards that they had another governance issue on their hands.

Nonqualified retirement plans like Supplemental Executive Retirement Plans, or SERPs, have been commonplace in U.S. companies for years. Their primary intent is to ensure that highly compensated executives are allowed to put aside a comparable percentage of their pay for retirement as are lower-paid workers; current U.S. law restricts salary deferrals on qualified plans like 401 (k)s to $11,000 a year.

"American businesses have long recognized that nonqualified retirement plans can be effective in helping to attract and retain key executives and employees," says Leonard Wilson, an executive benefits consultant with The Todd Organization, headquartered in Greensboro, N.C. Moreover, many companies offer more than one nonqualified plan--and sometimes several--including Supplemental Executive Savings Plans (SESPs) and capital accumulation plans.

A survey done recently by Todd, analyzing 2002 proxy data from almost 2,000 companies with more than $250 million in annual sales found:

* While 98 percent of the companies offered a qualified defined benefit and/or defined-contribution plan to employees, 71 percent of these companies offered one or more nonqualified retirement plans to key employees.

* Larger companies are more likely to offer nonqualified plans, though qualified plans are in place throughout companies, regardless of revenue.

* Ninety-six percent of companies that offer an executive deferred compensation program also offer a 401(k) plan, while 84 percent of companies that offer a SEEP also provide a defined benefit pension plan.

Tom Wamberg, chairman and CEO of Clark Consulting, notes that there is no immediate taxation on cash deferred through a SERE, which is carried as an account balance on the books. In retirement, a SERE normally distributes an annuity payment, and there is a cash expense to the company at the time of the payment.

Typically, he adds, a SERP might be structured so an executive would receive 50...