Silver, Tin and Pension Parachutes

These types of nonqualified deferred compensation arrangements are not as well publicized as their golden counterparts.

Golden parachutes are primarily used to shelter top executives in the event of a hostile takeover. Similarly, "silver," "tin," and "pension" parachutes are used to provide benefits to employees, except that a broader group of employees is usually affected.

Silver parachutes. Silver parachutes provide benefits to a broad base of employees in the event of a hostile takeover.

Pension parachutes. Pension parachutes increase retirement payments to employees participating in an employer's defined benefit pension plan. Pension parachutes become activated only after a change of corporate control, resulting in the automatic termination of the company's retirement plan. The excess assets are then used to provide additional benefits for all active and retired participants.

Tin parachutes. Tin parachutes are basically severance payments for rank-and-file employees that kick in if a hostile takeover costs employees their jobs. Many see these plans as an even better takeover defense than golden parachutes because having greater numbers can add up to a larger total package, even if individual payments are less.

Rules and tax consequences. The same rules and tax consequences that apply to golden parachute payments also apply to silver, tin, and pension parachutes. An important difference, though, is that silver, tin, and pension parachute payments are not subject to the 20 percent excise tax on excess parachute payments. This is because the payments are made to rank-and-file employees instead of to disqualified individuals.