Building Your Wealth at Truist

Understanding Your Company’s Compensation and Benefits Plans

© 2021 Brightworth. All Rights Reserved.

Do You Know the Answers to These Important Questions?

• What can you do now with your compensation and benefits plans at Truist to ensure you will be able to meet your financial goals, such as:
  • living comfortably in retirement
  • sending your children to college
  • paying off your mortgage
  • buying a vacation home
  • building a reserve fund so you can weather the twists and turns of life
• How should you invest your 401(k) plan and other investments today to build wealth?
• How much of your overall investments should be in company stock?
• How does your Pension Plan fit into your retirement nest egg?
• If you are eligible for Truist’s Non-Qualified Defined Contribution Plan, should you take advantage of that opportunity?
• Are you taking full advantage of tax savings strategies available to you?
• Is the medical insurance plan you’ve elected the best one for you and your family?
• If something happens to your job, will you and your family be financially OK?  What moves should you take now to make sure you will be? 
• Should tragedy strike, will your family be secure without your income?
• Are your life insurance and 401(k) plan beneficiary designations coordinated with your will and overall estate plan?

Brightworth specializes in helping busy professionals build and maintain a financial strategy to address their retirement planning, college funding, taxes, cashflow, investments, risk management, estate planning, and philanthropic objectives. One of the most common themes we’ve heard when speaking with an executive during their working years can best be summed up in a quote: “I am so busy with my career and family life that I have no time to focus on my finances, nonetheless, understand the details of how all of my company plans work.” Yet your personal finances are so critical to your future. It is the means to reach many of your life’s goals such as paying for your children’s college, retiring, and moving to the beach, or making a sizeable contribution to your favorite charity. Achieving your financial goals is like putting together a puzzle; each piece must fit together in order to complete the whole picture. If you want to make sure the pieces of your financial puzzle fit together, we can help.

Below are some highlights of how Brightworth approaches coordinating corporate compensation and benefits plans with a client’s overall financial picture.

401(k) Plan

Many professionals working in corporate America use their 401(k) plan as their primary savings vehicle. It’s convenient, you get a company matching contribution, and the money you save is automatically deducted from your paycheck. Truist currently offers a 100% match on up to 6% of your total annual compensation. However, Truist’s matching contribution is split into two buckets. The match on the first 4% is known as your “basic matching contribution”, while the subsequent 2% is referred to as your “supplemental matching contribution”. This distinction is important because all basic matching contributions/earnings are subject to special distribution rules. Your compensation includes salary, commissions, bonuses, as well as any pre-tax salary deferrals into your 401(k) plan. However, certain business departments within Truist fall under different matching schedules. If you happen to work for one of these “Participating Employers”, then your 401(k) match may be subject to different rules. You will be amazed at how quickly you can build a nest egg for retirement within your 401(k) plan because of these features. As such, you should consider setting up automatic monthly savings with all of your investment accounts! It is a great way to build wealth systematically and keep your lifestyle in check.

Every executive should plan to put the maximum amount into their 401(k) plan each year. You may elect to defer anywhere from 1% to 50% of your compensation during the year up to the IRS stated deferral limits. For those under age 50, in 2021 this deferral amount is $19,500. For those age 50 or above in 2021, the maximum deferral amount is $26,000 (including a $6,500 catch-up contribution). Oftentimes you need to make a separate election for the catch-up contribution, so don’t overlook this administrative detail when reviewing your 401(k). Once you are regularly maximum funding your 401(k) plan each year, try to never reduce your savings election. 

Truist offers a pre-tax 401(k) plan as well as a Roth 401(k) plan. The difference is the taxation of the money you put in now, and how it’s taxed in retirement. With the pre-tax 401(k) plan, the money you contribute today lowers your taxes today. When you take withdrawals in retirement, that’s when you pay tax on each withdrawal. With a Roth 401(k), your contributions are made today on an after-tax basis, so it does not reduce your taxes today, however, based on current law, withdrawals after age 59 ½ are tax-free as long as you’ve had the Roth 401(k) open for at least five years. 

Your 401(k) plan often offers a number of other investment choices which should be coordinated with your overall investment strategy. Typically, the younger you are, the more equity funds you should have since you are most likely in accumulation mode. As you approach retirement, adding in a few more bonds, real estate or alternatives funds makes sense. Brightworth can provide our clients with specific investment recommendations for their 401(k) plan based upon their personal situation. Truist’s plan also includes a self-directed investment option through Fidelity called BrokerageLink if you would like to invest your own 401(k) dollars outside of the pre-set list of choices in Truist’s 401(k) plan. Also, with the BrokerageLink feature, your financial advisor may be able to link to your 401(k) account and manage the investments for you. At Brightworth, we provide our clients with specific investment recommendations for their 401(k) plan based upon their personal situation and can manage the account through the self-directed BrokerageLink Option.

Truist’s 401(k) plan offers company stock as one of the investment options within the 401(k) plan. When an executive determines they own too much company stock, diversifying inside the 401(k) plan can be an easy and tax-efficient way to reduce the concentrated stock position. You do not pay capital gains tax when you sell company stock inside your 401(k) plan but remember that selling company stock inside your 401(k) plan is subject to insider trading restrictions.

Finally, be sure you have an updated beneficiary designation on file with your 401(k) plan administrator. Especially if your 401(k) plan administrator changes over time, be sure you’ve re-entered your beneficiary elections every time the plan administrator changes, even if you’ve been told your elections will carry over. We’ve seen many instances where they do not. Make sure your beneficiary designations are properly coordinated and integrated with your overall estate plan. For example, if you have created a trust in your will to hold assets for minor children, but your 401(k) beneficiary designation still shows your child’s names individually as the ultimate beneficiaries, none of the 401(k) money will land in the trust created in your will. This is one of the most common mistakes we see people make with their 401(k) plans – not having their beneficiary designations updated and coordinated with their estate plan.

Non-Qualified Defined Contribution Plan

If you meet the eligibility requirements to participate in Truist’s non-qualified plan, you have the option to defer a higher level of salary and/or bonus each year. This can be a powerful way to save for future goals and significantly reduce your current tax bill. Deferral elections are made during an open enrollment period in June and have strict limitations about changing the elections you made for each plan year. It is important to note that the compensation deferral limit (up to 50% of compensation) is coordinated between both the non-qualified and qualified 401(k) plan. In other words, if you defer 10% of your salary into the 401(k), then you can contribute the remaining 40% to the non-qualified plan. If you elect to participate in both the 401(k) and non-qualified plan, it is important to understand that deferral elections to both plans are locked in for the plan year. In other words, once you make your deferral election during the open enrollment period, it cannot be changed until the open enrollment period in the following year.     

During open enrollment, it is wise to have a cash flow strategy in place to know whether you should elect a lump sum, 1-15 year installments, etc. Without this, your cash flow, especially in retirement, could be sporadic and haphazard. Perhaps you are planning to retire after age 60 and want to have enough income for the first five years of retirement to cover your cash flow needs before you begin taking social security benefits. If this is the case, you may need your deferred compensation plan to help cover expenses in those first five years. 

There are a number of investment options, similar to your 401(k) plan, that you can choose from within your Non-Qualified Defined Contribution Plan. Once again, this asset allocation should be coordinated with your overall investment game plan and rebalanced periodically. Truist also offers the self-directed brokerage account option in the nonqualified plan as well so that you can invest your 401(k) dollars outside of the pre-set list of choices. As previously mentioned, with the BrokerageLink feature a financial advisor may be able to manage the account on your behalf. At Brightworth, we provide our clients with specific investment recommendations based upon their unique financial situation and can manage both the 401(k) and nonqualified accounts through the self-directed BrokerageLink option. 

There are several payment options offered through the nonqualified plan. Eligibility to begin receiving payments is based on meeting one of the following timing elections:

1. Two months after separating from service
2. Separating from service and at a particular age you designate (age cannot exceed 65)
3. January of the year following separation from service
4. January of the year following separation from service and at a particular age you designate 

It is important to note that if you designate a specific age to be receiving benefits, then you must meet both criteria mentioned in the elections above, not one or the other, before receiving benefits. Specific distribution election options from the plan are as follows:

1. Lump-Sum Payment
2. Installments paid out over a 1-15 year time horizon

There is flexibility in changing the timing and distribution elections above. However, changes do not become effective until one year following the elected change. For example, let’s say you are approaching retirement and originally elected to begin receiving benefits two months after separation from service with the lump-sum distribution option. In December, you change your mind and decide a 10-year installment payout fits your needs better. If you separate from service before a full calendar year has passed, then your distribution method would be governed by your prior election, and you would receive the lump sum payment rather than installments as you planned. A mistake like this can come with a large, unintended tax burden which may further erode your retirement nest egg. At Brightworth, we analyze our client’s retirement plan documents and provide specific distribution timing recommendations to ensure easily mitigated risks like this never occur. 

Finally, a beneficiary designation is needed for your Non-Qualified Defined Contribution Plan too. However, the way this account pays out upon the death of the account owner is different from a 401(k) plan – the proceeds cannot be rolled over tax-free to an IRA as it’s not a qualified plan. In many cases, the beneficiary will receive a lump-sum payment of the balance, and the payout is fully subject to ordinary income tax. It’s important your estate attorney understands the payout rules at death so they can advise how the beneficiary designation should be worded to coordinate with your overall estate plan.

Pension Plan

For many individuals pondering retirement, “What pension option should I elect?” is often the primary question they ask us regarding a qualified pension plan. (Truist offers different monthly payout options.) While the answer does depend upon each person’s particular situation, there are a number of factors to consider such as 1) your age and health at retirement, 2) whether you are married, and 3) whether you have any other pensions or stable monthly income streams you can rely on. Figure out what percentage of your retirement income is coming from “you” (i.e., your portfolio, consulting income), vs. Social Security, vs. a company pension plan.

Certain employees at Truist are eligible to participate in their pension plan. You are fully vested in the plan once you complete five years of vesting service or attain age 65, whichever occurs first. Similar to Social Security, your benefit will largely be based on the age at which you elect to begin receiving benefits. The earlier you begin taking benefits the further the amount is reduced. The earliest you can begin receiving benefits is at age 55 and your benefit will be reduced by 50% if elected. You also have the option to delay receiving benefits beyond the normal retirement age, which will result in a higher benefit amount later on.  

The plan benefit is determined using a special formula that includes average annual compensation, years of service, and average excess compensation. It is important to remember that your benefit payments are taxable in the year you receive them. Truist’s pension plan has several payment options available to you. Unless you specifically elect to enroll under one of the special payment options, your benefit will be paid as follows:

1. If you are not married when your benefit payments begin, your benefit will be paid as a life annuity. This annuity provides you with a monthly benefit for your lifetime. Payments begin when you retire and are paid until you die.
2. If you are married when your benefit payments begin, your benefit will be paid as a joint and 50% survivor annuity with a monthly benefit for your lifetime. After your death, if your spouse is living, he or she receives one-half of that monthly benefit during his or her lifetime.

If you decide to elect one of the special payout options, you must notify the Benefits Administration area of Human Resources in writing and with the consent of your spouse (if applicable) within 90 days before you begin receiving benefits. It’s important to note that although the total value of your benefit will be the same, the amount of the payment may differ according to the method of payment (or payment option) you choose. At Brightworth, we analyze our client's cash flow needs and help them choose a distribution method that best fits their unique financial situation. 

Investments

A solid investment strategy is the cornerstone to building and preserving wealth. It should be designed to meet your specific cash flow needs, time horizon, growth requirements, tax objectives, and risk tolerance. Successful investing requires a long-term perspective and discipline to avoid making short-term emotional mistakes. Having a coordinated and comprehensive strategic asset allocation is the foundation for your entire portfolio. As such, the investments you have outside of company plans should be designed to complement, not contradict, the investments you have within your company plans.

As your time frame for needing to spend down your investments for goals like college and retirement comes closer, you should adjust your investments to be more conservative. However, since you can spend more time in retirement than in your working years, stocks or other assets that have growth potential are still important for a portion of your portfolio to outpace inflation. Timing the market is not an investment strategy nor is looking at what did well last year and assuming that’s where your money should be invested. Investing is about looking forward, placing probabilities on various scenarios, and aligning your investments so that you’ll do well in multiple future scenarios.

Brightworth provides investment management services to our clients using sound investment disciplines with customized, innovative planning. The core of this system is a portfolio of carefully selected investments designed to enhance wealth while protecting capital over the long term. Through ongoing monitoring and evaluation, tactical shifts, and flexible managers, we are able to take advantage of opportunities and help mitigate risks for our clients.

Taxes

As a W-2 employee, you have limited ways to save taxes each year, but there are a number of strategies to take advantage of. Saving in the before-tax plans available to you at your company 401(k), deferred compensation, and health savings account (HSA) are typical “must-do” moves.

Next, consider funding an IRA or Backdoor Roth IRA strategy for additional tax-advantaged retirement savings. For those who make too much money to contribute to a Roth IRA ($140,000 MAGI Single or $208,000 MAGI Married Filing Jointly in 2021), you may be able to take advantage of this great opportunity. As long as you don’t have existing IRA investments, you can make a non-deductible contribution to your Traditional IRA and then convert it to Roth without any tax consequence. The maximum contribution you can make to an IRA in 2021 is $6,000 (with $1,000 catch up if you’re 50 or older.) This is a great way to build tax-free assets for your retirement)

College savings 529 plans are a solid investment and tax savings tools – research your home state’s 529 plan as you may receive a state tax deduction on your contributions. With 529 plans, the withdrawals used for qualified education expenses are tax-free.  

Some states offer tax credits for film, energy, and/or low-income housing. Purchasing these credits can lower your overall state tax bill as you buy the credits at a discount while receiving a dollar-for-dollar credit towards your state taxes in most cases. 

Finally, read on for charitable giving strategies which can help you save considerable taxes while fulfilling your charitable intent. Above all, consider working with a qualified accountant who is familiar with executive compensation strategies and can advise you on a variety of tax reduction strategies.

Charitable Giving

If you’ve held company stock for a long time and you have a lot of built-up gain in these shares, they could be great candidates for charitable giving. When stock is given to a charity, and the charity sells it, nobody pays capital gains tax on the sale.  A terrific tool for charitable giving that has great tax advantages is a donor-advised fund. This is essentially a brokerage account with a charitable wrapper around it. Cash, stocks, real estate, and other appreciated assets can be transferred into the account, the assets are sold with no capital gains tax due, and the cash proceeds become available for benefitting your favorite qualified charities. You receive a tax deduction for the value of the assets the year they are transferred into the donor-advised fund and can determine how much and when to gift out the assets in the account to charity. This makes for very easy tax reporting, no more keeping track of various receipts, and more control over the timing of charitable gifts for tax savings purposes.  

Insurance

You may have the bulk of your health, life, and disability insurance through your group coverage. For health insurance, this is typically fine and provides adequate coverage. For life and disability insurance, your group coverage may not provide enough benefits and you may need to supplement with outside insurance policies. The cost of all your health and wellness coverage at Truist is based on your “Benefits Annual Rate” (BAR), which reflects your total annual compensation including salary, bonuses, and other areas outside of your regular compensation. This is important, because as your BAR increases, so do your insurance premiums.   

Health insurance is an important part of any employee benefits package. Truist offers three different medical plan options, each of which provides a different level of coverage and benefits. Truist also provides dental, vision, and prescription drug coverage for employees.   

High deductible medical insurance plans have become increasingly popular in corporate America due to their lower monthly premiums. However, as the name states, the employee pays more of their first medical expenses each year until the higher deductible is met. A Health Savings Account (HSA) is available with high deductible medical plans. It’s a great tool to take advantage of the “triple tax play” as an HSA is the only investment vehicle where it’s pre-tax going in, tax-deferred while the money is in the account, and withdrawals are tax-free if used for qualified medical expenses. If you can build up this account and avoid using it for current medical expenses, this is a good tax-efficient strategy to help pay for higher medical expenses in retirement. Plus, once you turn age 65, you can take a penalty-free withdrawal from the HSA for non-medical expenses. There is often a list of investment options to choose from in the HSA plan which might make sense if you’re trying to accumulate a large balance for retirement. Don’t forget about Truist ’s annual matching contribution to the HSA of $500 for individuals/$1,000 for families – this is “free” money!  

Life insurance is most important during your working years while you are accumulating wealth to reach your long-term goals, as well as covering daily living expenses and debts. This is the time where your life insurance need is greatest, yet as you build wealth, your need for life insurance goes down. You should run numbers with a professional to determine how much life insurance is right for you and your family. Consider the need to replace your income for a period of time, top off college savings, pay off the mortgage and other debts, and whether you want a retirement fund secured for your spouse or partner should something happen to you. Buying supplemental life insurance through your employer may be more expensive than securing it with an outside company, where you can also lock in your premiums for a period of time.  

Truist offers a company-paid life insurance plan for all employees. The plan provides coverage equal to 1x of your BAR, not to exceed $1 million. In other words, your life insurance death benefit is equal to your BAR (up to $1 million). Truist also offers supplement life insurance plans to cover teammates, spouses, and even children. It’s important to review your household’s financial needs should a family member pass away. At Brightworth, we help our clients evaluate their different insurance options to determine their best fit for their circumstances.  

Your life insurance beneficiary designation must be coordinated with your estate plan. Your life insurance may not payout according to your wishes unless you word the beneficiary designation accordingly. One common question to address with your estate attorney is whether your life insurance policies should be in a trust. If the answer is yes, you must fill out the proper assignment and beneficiary change paperwork to transfer your group coverage into the trust.  

Disability insurance replaces a portion of your income if you are unable to work for an extended period of time. For most people in corporate America, your ability to earn an income is your greatest asset, so it should be protected. Currently, Truist provides 50% of your “Benefits Annual Rate” for both short and long-term disability benefits at no cost to you. It often makes sense to have supplemental disability insurance above the basic amount your employer offers. Truist also offers “teammate”-paid disability plans which covers up to 60% of your benefits annual rate for both short and long-term coverage. You may be able to buy supplemental disability insurance coverage during open enrollment through your company, or you can buy it through an outside insurance company. Purchasing disability insurance with after-tax dollars is ideal, as the disability income received would be tax-free to you. 

Finally, we’ve seen many executives have insufficient liability insurance through their home/auto/umbrella policies. If you were to become involved in litigation without proper protection, your balance sheet and possibly paycheck could be at risk. Have your home/auto/liability insurance plan reviewed every few years. It may save you money and more importantly, address potential gaps in your coverage.

As a fee-only firm, Brightworth does not sell insurance but instead, provides objective advice and analysis on this often confusing topic.

Estate Planning

Every adult needs at least a basic estate plan consisting of a will, a financial power of attorney, and a healthcare directive. These documents should be drawn up by a qualified estate attorney and reviewed at least every five years. As the estate tax law change, your family dynamics change, and you build your wealth, periodically reviewing your legal documents is necessary to protect your wealth and ensure that your final wishes would be fulfilled. Remember, beneficiary designations for life insurance and retirement plans need to be coordinated with your overall financial and estate plan.

Conclusion

Understanding the “ins and outs” of Truist’s compensation and benefits plans is absolutely critical to making wise decisions, maximizing the options presented to you, and putting the pieces of the puzzle together into one coordinated strategy. Having a financial advisor who is knowledgeable and experienced with executive compensation strategies, and who will do a “deep dive” into your plans can provide you with more confidence and peace of mind as you navigate your career. It will help put you on a better path to achieving your financial and life goals.

If you have questions about your financial strategy or would like a second opinion, we are happy to sit down with you to discuss your unique situation in more detail.

This information is based on information deemed to be factual and reliable. Please also refer to the Truist company plan documents and your benefits department.