Negotiate a smarter retirement package

In a time of early retirement and high unemployment, more workers are thinking about what happens when they receive their final paycheck. While some may have negotiated a one-time payout, others may stand to receive additional benefits: extended health care coverage, accelerated vesting of shares or even a limited role in the future of the company.

In fact, your exit package is an often overlooked—and highly negotiable—part of your compensation. Even if you’re not in the executive tier, your years with a company, expertise and contacts can mean leverage in dictating the terms of your retirement. What are your retirement package options and how should you negotiate for them? Be sure to bring any questions and concerns to the bargaining table early in the process. Here are some tips to help you walk away with the most favorable package possible.

Consider consulting

There may be a number of opportunities for you to ease the transition to your “second act.” One way to bridge the income gap between your working years and retirement is to offer your consulting services for a limited time, says James Humza, director, Equity Award Services at Bank of America Merrill Lynch. As you shift gears, your expertise may still prove helpful to your employer, especially if you are leaving a team that can continue to leverage your contacts and best practices. Soon-to-be retirees at many different levels of seniority can propose a consulting arrangement, with tasks as various as training new employees, giving seasonal accounting assistance, providing guidance on troublesome accounts or simply sharing insights that someone in a corner office might miss.

If a consulting contract is on the table, bring a detailed list of why keeping you on board in a limited role will benefit the company. List client and industry relationships, any current or pending deals in which you have been instrumental, and internal programs that you’ve helped to set up or know well. Offering to train or support a successor also makes a good bargaining chip, according to Humza.

Part-time consulting can have a multiplier effect on retirement assets. It allows your current savings to continue to have the opportunity to grow, gives you a larger Social Security payout later and, depending on the terms of the contract, may enable you to continue to contribute to your 401(k) plan. You might also propose staying on the company health plan, delaying a significant retirement expense or retaining use of other resources such as a phone line, company transportation or an assistant.

Accelerate vesting

You may also have more influence over the shape and distribution of your payout than you realize. Many companies have vesting programs that offer restricted stock options as incentives for employees to stay as long as they can. For instance, a company may offer an employee 4,000 vested shares but award only 1,000 shares each year for four years.

“Most companies offer a retirement-eligibility provision for their equity compensation program that kicks in upon achieving a certain age or years of service,” says Humza. “In the case of forced or early retirement, sometimes companies will expand the rules to allow more people to get the full vested value of their outstanding awards. If you’re not automatically eligible for accelerated vesting, then you should ask for it.”

Be sure you understand the tax implications of any acceleration, Humza cautions. You will be taxed once the shares become fully vested. If you have some time before you retire, you may want to consider making a timely election under section 83(b) of the Internal Revenue Code, a provision that, if applicable, locks in the ordinary income tax component of these shares and generally allows future, post-election appreciation to be taxed at long-term capital gains tax rates, thus potentially resulting in an advantage if you plan to hold the shares for an extended period and expect the stock prices to rise. You should coordinate with your tax advisor to determine whether such an election, if available, would be beneficial for you.

Plan other payouts

Other types of retirement plans may also allow for wiggle room. Those in the management and executive tiers should consider nonqualified plans that may be part of compensation, as there may be more flexibility in payouts than standard 401(k)s. These plans generally allow you to defer a tax liability until retirement, when you presumably will be in a lower tax bracket.

“Nonqualified deferred compensation plans can be very beneficial, as workers use them to contribute more money toward retirement, and then have more latitude to determine and negotiate payments,” says Kevin Crain, senior relationship executive, Bank of America Merrill Lynch. Nonqualified plans can be complex and are not available to everyone. They should be part of a holistic conversation with a financial advisor and tax advisor.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.