In a highly competitive job market, attracting and retaining the best employees is not always an easy task. You need to take advantage of all strategies at your disposal. Many employers work hard to develop an attractive compensation package for their employees as a method of retaining staff. In addition, it is very common that a successful business owner or any professional, may have maxed out on the tax deductible and elective deferral contributions to their qualified retirement plans, such as profit sharing, 401K, or Simplified Employee Pension (SEP) type plans. Often, this raises questions as to other options for supplementing their retirement. Is there a simple policy that can be offered selectively to small business owners and their employees which can provide a special benefit plan on a tax favored basis?
There are many ways of compensation with bonus packages but the best for the employee and business owner alike, is the Executive Bonus Plan. The Executive Bonus Plan provides additional incentives to the employee, including a life insurance policy that also functions as an investment vehicle. The employer makes the premium contributions. The said life insurance policy provides death benefits and a cash value accumulation that may be utilized as a supplemental income at retirement. This can be the only retirement plan for the employee, or it can be a supplemental retirement plan. It also provides an income tax-free death benefit to the employee’s beneficiaries.
Among many, a few benefits of these policies for the small business owner is the Executive Bonus Plan counts as salary for the employee. This allows the employer/ business owner to reward the employee, while claiming the bonus as a deduction on their business taxes for premiums paid into the policy. This is something a non- qualified stock option or non-qualified deferred compensation plan would not do. Another plus for the small business owner is that the Executive Business Plan provides a recruitment tool, carries minimal implementation expense, requires no IRS approval, provides immediate income tax deduction, and has great plan flexibility. The employer can also tie the Executive Bonus Plan to the employee’s performance. Unless they meet or exceed performance indications, they do not receive the bonus.
Typically, the type of life insurance used for this type of Executive Bonus Plan is Indexed Universal Life Insurance. These polices make it simple to set the bonuses at different rates each year and create access to the cash value accumulation. The employee owns the policy and names their death benefit beneficiary.
These simple to set up and simple to maintain bonuses can effortlessly be added to existing salary and benefit packages. Consider adding it to your executive packages for benefits for the small business owner and their employees.
