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 clients who are searching for a benefit tool to reward key executives and they need a tax-deductible contribution, then 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.
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.
The restricted executive bonus arrangement allows the employer to not only stay in control, but it also can provide a company with a current income tax deduction. Additional benefits include:
==An enhanced ability to recruit and retain key executives;
==Ease of implementation and maintenance;
==The ability to pick and choose participants; and,
==The ability to implement or terminate the arrangement without IRS approval;
Benefits for the employee include:
o Zero income tax where a double bonus is used;
o The ability to customize benefits and contributions;
o Tax-deferred growth of policy values;
o Access to policy values after release of the restrictive endorsement;