Executive Benefit Plans
In order to attract and retain key executives, successful companies often desire to selectively reward employees who have a positive impact on the company. Our goal is to help provide benefits at the lowest possible after-tax outlay for the company while avoiding significant taxable income to the executive. Such plans may fund benefits for death, disability or retirement of selected executives. In a closely held business the owners are often the key employees that these benefits are being designed to cover. Listed below are the planning techniques and issues that are often considered.
Split-Dollar Arrangements allows the corporation to typically purchase life insurance on an employee to minimize the current income tax consequence to the employee. The company typically recovers its outlay at either the employee’s death, termination of employment or retirement.
Long-term Disability Insurance is paid for by the company on a tax-deductible basis to provide the executive protection in case of a permanent disability. This coverage can be provided to a select group of employees. Benefits received are taxable but the employee can elect to treat the premium as additional compensation currently and receive tax-free benefits at time of disability.
Executive Bonus Plans guarantee continued income to the executive at retirement or to the key employee’s family at death. If life insurance is used, generally the company pays the premium on a non-deductible basis with little current income tax consequence to the employee. Often, this benefit is provided in lieu of or in addition to a qualified pension plan due to the complex regulations the government imposes on these plans.
Deferred Compensation Plans are an attractive way to allow key employees to reduce current taxable income while the employer builds assets to be paid out to the employee later. The company has full control of the assets but enters into a written agreement with the employee guaranteeing the payment of the funds at termination of employment or retirement. Life insurance can be used as a funding vehicle.
Group Carve-Out Coverage offers employees the ability to purchase Permanent life insurance coverage in lieu of Group Term coverage in excess of $50,000. The company funds part of the cost by the savings it receives on its group life premium while the employee gains the benefit of tax-deferred accumulation inside the insurance contract.