|
What are your plans for highly compensated and highly motivated employees?
Consider using tax-advantaged retirement planning through a Supplemental Executive Retirement Plan (SERP) funded by cash value life insurance.
While the Section 401(k) plan is a valuable way to put away pretax income for retirement, the maximum annual participation limit, indexed for inflation, stands at $11,000 for the year 2002. This severely curtails the plan's usefulness for highly compensated and highly motivated employees.
A SERP allows for:
-
An executive to voluntarily elect to defer a percent or fixed amount of income (the employer may even agree to match the employee's participation).
-
The deferrals then get the potential benefit of substantial interest accrual from managed monies.
-
Additional income amounts, income taxes and the taxes on the growth can be deferred.
The Role of Life Insurance
Using life insurance to informally fund a SERP may entitle the employer to complete cost recovery or more up to the policy limits. Employers like to use SERPs as a type of "golden handcuffs" or special benefit, in part because the employer can make the matched premium payments subject to a risk of forfeiture; that is, subject to future conditions that must be met before benefits are paid. Both the employee and employer know that this is an all-or-nothing additional benefit.
Consider the following products from Lincoln Life to supplement your plan:
Other Executive Planning Designs
-
Deferred Compensation - Split dollar life insurance plans have been used for years as a way to provide special supplemental benefits for key employees. While they have been used mainly by closely held and family-owned corporations to benefit stockholder officers, there has been a growing use by large public companies for the benefit of key executives. Split dollar plans are often used in conjunction with deferred compensation plans.
-
The employer purchases a life insurance policy on the employee.
-
If the employee dies prior to retirement, the split dollar insurance proceeds are tax-free to the beneficiary.
-
If the employee lives to retirement the employer can either use the cash values to provide supplemental retirement income to the employee, or the employer can pay benefits directly to the employee and recover its costs from the policy death benefit proceeds. Therefore, the same policy can be used to provide low cost life insurance during employment and help to fund a retirement benefit later
-
Key Employee - Any successful business is a combination of three factors:
-
capital in the form of money, credit or assets,
-
labor in the form of employees and
-
management ability or entrepreneurship.
Of these, the last factor is the most important. Capital and labor can always be replaced - the last is irreplaceable. It is the key people - those who mean the difference between success and failure - who must be insured.
LM0112-0484
|
