Restricted Executive Bonus Arrangements Provide Ample Rewards
By Matthew L. Rowles, CLU, ChFC, Advanced Marketing Director with Prudential’s Field Sales Support Organization
Running a successful business in today’s world is not an easy task. It takes the commitment of a talented team of knowledgeable executives. Their expertise is an invaluable asset that a business owner can’t afford to lose. Recruiting and retaining these executives requires more than just a good salary – it demands a competitive benefits package. If you have a client that is searching for a benefit tool to reward key executives and he/she needs a tax-deductible contribution –consider a Restricted Executive Bonus Arrangement.
Government regulations have made it difficult for employers to provide additional benefits to select employees using qualified plans. A qualified plan must cover a broad group of employees == not just key employees. Other alternatives – such as nonqualified deferred compensation and split dollar plans can be used, but unlike qualified plans these arrangements deny the employer a current tax deduction.
The Restricted Executive Bonus Arrangement combines an executive bonus with a restrictive endorsement on an insurance policy issued on the executive’s life. The restrictive endorsement acts as “golden handcuffs” encouraging the executive to remain with the company. Not only does the Restricted Executive Bonus Arrangement allow the employer to stay in control. But structured properly it can provide a company with a current income tax deduction.
For the employer, the benefits of a restricted executive bonus arrangement include:
?A benefit enhancement to recruit and retain key executives
?A current income tax deduction
?The company remains in control
?It’s simple and straight forward to implement and maintain
?Allows the employer to pick and choose participants
?No IRS approval needed for implementation or termination
Benefits for the employee include:
?Zero income tax cost where a double bonus is used
?Designed to meet individual benefit and contribution needs
?Values grow tax-deferred in the policy
?After the restrictive endorsement has been released, value can be accessed for personal needs
?Your individually owned policy is safe from company creditors
?Portability – the policy is not lost if you change employers
?When life insurance is used, the survivors receive generally income tax-free death benefits under IRC 101(a).