Lifetime Income Non-Qualified Solution (LINQS+)
A proprietary innovation to the traditional SERP product.
With Lifetime Income Non-Qualified Solution (LINQS+), the financial institution purchases an insurance company guarantee to make the lifetime benefit payments. The Insurance Company takes the longevity, investment, and interest rate risk. The financial institution carries the asset as an investment on the balance sheet and earns interest at the current rates.
This proprietary innovation to the traditional SERP product combines the best of a traditional SERP with a mechanism to enhance executive retention and reduce the cost of the benefits for the financial institution.
Example: An executive is to receive $100K annually for 15 years under a traditional SERP; the cost of the plan is $1,500,000 (100K x 15). With LINQS+, an investment of $800K will provide a GUARANTEED lifetime benefit stream of the same $100K annually. The financial impact is a positive savings of $700K for the financial institution, and the executive receives an enhanced LIFETIME benefit, which would equal $2,100,000 based on expected mortality.
How is this different from BOLI?
LINQS+ is NOT life insurance, however, if structured properly, LINQS+ and BOLI are a complement to each other. BOLI policies provide earnings to offset the cost of the benefit plans and protect against premature death through the insurance aspect of the policy. LINQS+ protects executives, and financial institutions, from longevity risk. As described above, LINQS+ actually reduces the cost of the benefits as the design specifically addresses the liability expense.
If the financial institution owns the annuity, then who receives the payments?
The financial institution owns the guarantee and retains full rights to it. Under the LINQS+ structure, the financial institution is effectively the conduit between the executive and the insurance company. The financial institution receives the benefits from the insurance company and in turn, distributes those payments to the executive. In the event of death, any remaining value in the asset is returned to the financial institution.
Where did LINQS+ come from?
Initially designed to address executive compensation expense pressures during the Great Recession, LINQS+ also helped alleviate the concern many executives had over outliving their retirement income. After spending two years in the development stages, LINQS+ was launched in 2011 and continues to be implemented from coast to coast.
How can a LIFETIME benefit cost LESS than a 10 – 15 year benefit?
Accounting guidance stipulates expensing the cost of the actual benefit payments or the cost to provide those payments (typically by a third party).
- Reduced benefit plan expense
- Increased retention due to lifetime payouts
- Fixed benefit plan expense at implementation (no additional expenses will be required)
- Benefit payments are not contingent upon investment performance
- Works in concert with other informal funding arrangements, such as BOLI
- No medical underwriting required
- Joint payout options are available
- Off-balance sheet structures can be designed
How long does LINQS+ implementation take?
Although there are a number of steps, the process itself is very simple. Once LINQS+ is approved by the board, the implementation can be completed in about 30 days.
What is the impact to the participant?
The participant will receive a lifetime payment from the financial institution. This payment is perfectly matched by the asset purchased by the financial institution. Just like all other nonqualified deferred compensation arrangements, the participant will owe income tax upon receipt of the payment(s).