Vesting and Exception Policy for Early Retirement Disability

By Chuck Steege. Everyone was stunned when Liam, the hard-charging chief logistics officer, suffered a heart attack at the pharmaceutical company where he works.  While he’s mostly recovered, Liam is retiring on doctor’s orders and has reached out to Margaret, his company’s stock plan administrator.

Liam qualifies for permanent disability, which would allow him to retire sooner than expected. The question remains how to put together the resources – from savings and equity compensation including performance shares — to replace his lost income between his current age of 58 and his pension eligibility age of 62, as well as his qualifying age for Social Security benefits at age 66 and four months.

Margaret is fond of Liam and his wife, Ellie, whom she’s gotten to know at company trips and events. She knows Ellie was shaken to the core by Liam’s heart attack. Now Liam is studying the impact of early retirement on his equity compensation. Margaret knows he has a high level of earned income plus performance shares. His performance shares vest over three years and are subject to an additional two-year post-vest holding period.

Margaret has good news. She informs him of the company’s policy to make a pro rata distribution when termination is caused by retirement, death or disability. This means his shares may vest more quickly than if he was working:

retirement disability blog
The accelerated vesting is good news to Liam. He confides that he has sufficient assets to retire now, but he’s unsure about the best sources of cash flow and recognizes he needs help in putting a plan together to meet living expenses that is predictable, reliable and effective.

He’s also concerned for Ellie, who needs to understand the financial picture in the event she was left on her own. The couple’s advisor will review their financial picture with Ellie and help her come up to speed on company and personal life insurance and other benefits.

The advisor will develop a plan that matches the timing of cash flows with living expenses.

Do you know your company’s vesting policy and whether it offers exceptions for disability? In this case, Margaret was able to provide the needed clarity before Liam applied for retirement benefits. She also recognized they had an advisor who could help them achieve their objectives. They look forward to a life of travel, family outings and volunteer work now that Liam is feeling better and has time to spend on fulfilling life outside the office.

The name, likeness and circumstances in this example are a fictional composite of facts from executives similar to actual SFG Clients.

Chuck SteegeMr. Steege is President of SFG Wealth Planning Services, Inc., SFG Investment Advisors, Inc. (SFG), a fee-only financial planning firm. Founded in 1993, SFG is dedicated to assisting senior executives and their employees with their complex stock-based compensation and planning challenges.



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