Phantom stock plan design for closely held businesses and banks
Schiff Executive Benefits handles phantom stock plan design, funding, and administration for privately held companies that want to retain key people without giving up equity. We have been doing this work since 2006, and phantom stock is one of five nonqualified structures we specialize in — alongside SERPs, 401(k) mirror plans, split dollar, and COLI/BOLI-funded arrangements.
Why phantom stock is usually done badly
A phantom stock plan sits at the intersection of three professions, and most companies only hire one of them.
- The attorney drafts a document that is legally sound and financially unmodeled. It says what happens; it does not say what it will cost.
- The CPA handles the tax and book treatment, and correctly warns about the liability accrual — usually after the plan is already signed.
- The financial advisor proposes a funding vehicle without necessarily knowing IRC 409A well enough to see the payment-timing defect sitting in the document.
The result is the plan we are most often asked to repair: a well-drafted agreement, an unfunded and growing liability, and a payment trigger that does not satisfy 409A. The document is fine. The plan is not.
What an executive benefits specialist actually does
We work backward from intent. Before anyone drafts anything, we establish what the plan is actually for — retaining one named person, aligning a management team through a sale, bridging a family business to non-family leadership, or making good on a promise an owner made ten years ago. The structure follows from that, not the other way around.
A typical engagement covers:
- Intent and design. Full value, appreciation only, or blended. Who participates, at what level, and why. What the plan is meant to do that a raise or a bonus cannot.
- Valuation architecture. Establishing a method both the owner and the executive will accept in year seven, when the number matters. We use RISR to keep company value monitored continuously rather than annually.
- 409A payment-event design. Getting the triggers right at the outset, because 409A does not allow you to fix them later without consequence.
- Financial modeling. What the liability looks like on the balance sheet in years one through fifteen under several growth assumptions, and what the P&L expense does along the way.
- Funding strategy. Cash flow, sinking fund, or informal funding through corporate-owned life insurance, modeled side by side against your numbers.
- Coordination with your counsel and CPA. We do not draft the plan document or give tax advice. We build the design your attorney drafts and your CPA books.
- Ongoing administration and review. Annual statements to participants, valuation updates, and a compliance check when the business or the tax law changes.
Our background in 409A
Matthew E. Schiff, CLU, ChFC, WMCP, founded Schiff Executive Benefits in 2006 after eight years as Managing Director at NYLEX Benefits. He served as a ranking member of AALU’s NQDC Committee during the drafting of the IRC 409A and 101(j) regulatory frameworks in 2003 and 2005, and supports more than 2,500 agents working in that space today.
That history is relevant to phantom stock specifically. Section 409A is where these plans fail, and the failure lands on the executive the plan was built to retain — immediate income inclusion, an additional 20% federal tax, and a premium interest charge. Designing around that rule is not a document-review step at the end. It is the first constraint.
Firm credentials and affiliations: Member Firm of NFP (2006–2008), Valmark Member Firm (2009–2012), MassMutual Executive Benefits Specialist, Lion Street (2020–2022), AgencyOne Top Ten Firm (2024), Founding Firm of The Ridgeback Group, and a member of The IBC Study Group. We are broker-agnostic and can place business with any carrier.
Who we work with
- Closely held businesses, typically $10 million to $250 million in enterprise value
- S corporations, C corporations, LLCs, and partnerships
- Family businesses with key non-family executives
- Community and regional banks (where the same structures are funded with BOLI)
- Owners five to ten years from a sale or transition
- Companies with an existing phantom stock or NQDC plan that needs a compliance review or a 409A correction
What it looks like to work with us
First conversation (no cost). We ask what you are trying to solve and who you are trying to keep. Often the answer is not phantom stock, and we will say so — a 401(k) mirror plan, a SERP, or a straightforward retention bonus is sometimes the better instrument.
Design and modeling. We build two or three structural alternatives against your actual valuation and cash flow, with the liability and funding modeled out over the life of the plan.
Implementation. Your attorney drafts from our design. Your CPA confirms the book and tax treatment. We coordinate the funding and the participant communication — which matters more than owners expect, because a benefit the executive does not understand does not retain anyone.
Annual review. Updated valuation, updated statements, and a check that the plan still does what it was built to do.
Common questions before the first call
Do we already need to know whether we want phantom stock?
No. Most owners arrive with a problem (“I can’t lose Dave”) rather than a product. Choosing the instrument is the work.
Will you work with our existing attorney and CPA?
Yes, and we prefer it. We do not draft plan documents and we do not provide tax or legal advice. We design and model; your advisors execute and confirm.
Can you review a plan we already have?
Yes. A compliance and funding review of an existing phantom stock or NQDC plan is one of the most common engagements we take, particularly where the plan was drafted years ago and the company has since grown into a liability nobody modeled.
Do you only work locally?
No. We work with companies nationally.
Start the conversation
If you have a key employee you cannot afford to lose and an ownership stake you are not willing to give away, that is exactly the problem phantom stock was built for — and exactly the problem worth designing carefully.
Contact Schiff Executive Benefits →
Related reading
- What Is a Phantom Stock Plan? The Complete Guide
- The Business Owner’s Setup Guide
- IRC 409A Compliance Guide
This material is for general informational purposes only and does not constitute tax, legal, or investment advice. Schiff Executive Benefits does not provide tax or legal advice.