Howell & Associates Advanced Planning - Green Bay, Wisconsin

How It Works

• The employer selects the executives to participate in the plan and enters into an
agreement with each that requires the employer to pay the premiums on a life insurance policy for as long as the employee continues employment with that employer.

• The employer treats the premium amount as a
compensation bonus to the executive, which is
tax deductible to the employer and taxable as
income to the executive.

• The employer may also agree to “gross up”
the bonus amount to the executive to offset the
income taxes when due.

• The executive has the opportunity to contribute an additional amount into the policy to help build cash value assets.

• Policy cash values may be used to supplement retirement income or other cash flow needs of the executive.

• Additionally, the company may incorporate a
Restrictive Endorsement, which provides a
retention element restricting the employee’s
access to the policy cash values until a specified date.

Executive Bonus Plan

With an Executive Bonus Plan, also referred to as a 162 Bonus Plan, the company uses compensation bonuses to assist the executives in saving for their own personal financial and retirement goals. The company pays the premiums on a specially designed, employee-owned life insurance policy and treats the premium amount as a compensation bonus to the executive. If properly structured, the policy’s tax-advantaged cash value accumulation and death benefit can help provide the executive with significant income and survivor benefits.

Advantages For The Employer

Discriminatory Benefits: Freedom and flexibility to select participants.

Tax-Deductible: Premium amounts are treated as compensation bonuses and are, therefore,
currently tax deductible.

No IRS Approval: IRS approval is not required, although plans are subject to “reasonable
compensation” limitations.

Simple: An EBP is simple and inexpensive to set up and administer.

Paper Handcuffs: A retention element may be exercised which can limit the employee’s access
to the policy for a specified period of time.

Advantages For the Employee

“Portable” Life Insurance: The employee owns a life insurance policy, for an out-of-pocket cost (the tax on the bonus) that is a fraction of the total premium.

Self-Completing: Policy can be maintained during the employee’s disability or retirement with the costs of insurance being paid from policy values.

Tax-Deferred Growth: Policy cash value accumulates on a tax-deferred basis.

Supplemental Income: Potential policy cash value can be accessed to provide a source of
supplemental retirement income or other income needs.

Survivor Benefits: High-income employees have more income to protect in the event of a
premature death.

• If properly structured, the survivor(s) may receive significant income-tax free survivor benefits

Benefit Security: Plan may be removed from claims of corporate creditors.