Pub. 4 2014-2015 Issue 5

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S March • April 2015 13 As an example, let’s assume the bank desires to implement a performance-driven retirement plan for a key lender who is 35 years old. Let’s also assume that if the lender meets both depart- ment and individual target goals along with the bank-wide net income goal, the lender will receive an annual grant of 10 percent of salary. The bank will cap the grant at 20 percent of salary if maximum performance goals are attained. For this individual, assume the annual contribution is based on a combination of loan growth, deposit growth and bank-wide net income. The goals and the weighting of each goal will vary by officer. Assuming normal retirement age of 65, and 10 percent of salary contributions each year, the executive is projected to be credited with almost $400,000 in bank contributions. With interest added to the account, the retirement benefit is expected to be almost $80,000 per year for 15 years, a total benefit of $1.2 million. The payments are contingent on the executive not taking a job where he or she competes with the bank after retirement. This type of arrangement is documented in a legal agreement between the bank and the executive. The agreement must com- ply with IRC Section 409A and should address various agreement terms and conditions including: • Early voluntary termination • Disability • Change in control • Pre-retirement death • Death during payout • Non-compete and non-solicitation of customers and employees • Holdbacks • Qualifiers such as satisfactory performance evaluations and credit quality • Form (number of years) and timing (age or date) of benefit distributions It is critical that bank-wide goals along with department and individual goals be linked to the bank’s budget and overall strategic plan. The goal setting process is typically the most challeng- ing step in designing the plan. Some banks use moving averages (such as the bank’s three-year average net income) and other longer-term measures to determine executive performance and bank contributions. Rewarding executives with a mean- ingful compensation package tied to long-term shareholder return is a balancing act. While there is not a one-size-fits-all approach for designing and implementing this type of plan, the facts and circumstances of each bank will dictate the best design after taking into account the bank’s culture and compensation philosophy. Equias Alliance offers securities through ProEquities, Inc. member FINRA & SIPC. Equias Alliance is independent of ProEquities, Inc. n CEDCO Small Business Finance Corporation Your Best Soursce for SBA Real Estate Loans New Easier Qualification Uninterrupted access to money through a monthly SBA-backed bond auction Low fixed-rate financing Low down payments CEDCO Small Business Finance Corporation Colorado’s SBA 504 Loan Expert TM 1175 Osage Street, Suite 110 Denver CO 80204 Denver 303-893-8989 Grand Junction 970-243-1852 www.cedco.org  More stability for your operation  A stronger balance sheet  An asset to sell when you’re ready AS A LEADING SBA 504 LENDER WE MAKE IT EASY FOR YOU  Buy, Build, Remodel or Expand Real Estate  Purchase and install long-lasting equipment  Fast, expert processing - with low loan costs  Refinance may be an option  We lend up to $5 million: borrow up to $20 million when combined with bank financing  Interest rate as low as 5.25%, fixed for 20 years  Down payments range from 10% to 20%  Most small Businesses are Eligible STREAMLINED PROCESSING  Front Range and mid-mountains call Jeff or Mary Jane 303-893-8989  Western Colorado call Pat 970-243-1861 David Shoemaker, CPA/PFS, CFP®, is a principal of Equias Alliance, which through consultants has assisted over 800 banks in the design of nonqualified benefit plans, performance based com- pensation and (BOLI). To learn more, contact David Shoemaker at 901-754-4924 or dshoemaker@equiasalliance.com. Ken Derks is a principal of Equias Alliance, which through consul- tants has assisted over 800 banks in the design of nonqualified benefit plans, performance based compensation and (BOLI). To learn more, contact Ken Derks at 469-252-1037 or kderks@ equiasalliance.com .