Advisor Tells Peers What To Review With Corporate Executive Clients

What is the first document that you should request from a corporate executive client?

Her pay stub.

That’s what Lisa Brown, a partner and wealth advisor with Brightworth, based in Atlanta, told attendees in Dallas at the 7th annual Inside Retirement conference, sponsored and produced by Financial Advisor and Private Wealth magazines.

Brown, whose clients include many executives from Fortune 500 companies, shared strategies on how to make sure that high-income corporate executives at or near retirement are getting the maximum from their company benefits.

“They are busy, busy, busy people, and they just aren’t paying attention to their money,” she said.

The reason she starts by examining a client’s pay stub is that high-earning, busy clients often don’t realize exactly how much money they make and are contributing to benefit and comp plans. The pay stub will quickly show salary, bonus and to what kind of benefit plans the client is contributing to.

Brown illustrated the importance of looking at pay stubs when she described her first meeting with a client named Bob, who was 68 and had been working 30 years for The Coca-Cola Co. when he enlisted her services. When she asked him his salary, Bob said he had no idea; his net pay was certainly enough to cover household expenses. When she asked how much was in his 401(k) plan, Bob told her he had no idea, but he did remember when he started at Coke three decades earlier, he began contributing 3 percent of his salary and had continued doing so ever since.  

Brown knew the company match at the time was 6 percent, so as a result he had been forfeiting 3 percent in company contributions, amounting to big money over the years.

After asking about pay stubs and 401(k) plans, Brown asks corporate executives about stock options and restricted stock. She did the same with Bob and found he had exercised stock options periodically over the years, but he had let all the money—millions—sit in a cash account.

She stressed that advisors should periodically ask for updated pay stubs from clients since plan contribution and benefits can change. “Most of our executive clients are spending every single dime of their take-home pay,” Brown said. She added an updated pay stub is “one of the best documents you can have in working with executive clients.”

Corporate executives may get big payouts from deferred comp and other benefits plans when they retire, but not think about how they can plan ahead to minimize taxes, she said.

One of the “big misses” that corporate executives make is failing to make annual catch-up contributions to retirement plans starting when they turn 50 years old, Brown added.

Brown also described a 401(k) strategy that could work for people who leave their employer in the year they turn 55 or later. When individuals are between 55 and 59-and-a-half and leave their employer, they can take 401(k) withdrawals without a 10 percent penalty. For such individuals who might want to take retirement-account withdrawals, it could be cheaper to leave funds in the former employer’s qualified 401(k) plan rather than roll over the entire balance to an IRA, where the withdrawal penalty would still apply up to age 59-and-a-half.

Another strategy she described: Some company 401(k) plans allow after-tax contributions, which can later be used to fund a Roth IRA. Some companies even allow “in-service roll outs,” or rolling out money while a person is still employed. Most executives don’t know that they may be able to roll after-tax 401(k) contributions into a Roth IRA, Brown added. One of her clients was able to roll over $300,000 in after-tax contributions from her 401(k) plan into a Roth IRA. That move will save her thousands in taxes, since Roth IRA withdrawals are tax free, versus withdrawals from traditional IRAs, which are subject to ordinary income taxes.