Executive Bonus Insurance Plans are non-qualified plans (NQDC).
There are no ERISA (Employment Retirement of 1974) requirements since plan is non-qualified.
The employer can discriminate as to who receives the Executive Bonus and has freedom to select the employee(s),including themselves, who are to be the beneficiaries of plan.
Unlike Deferred Compensation and or Split Dollar Plans, the employer gets a current tax deduction for making the premium payment for the policy, assuming “reasonable compensation” and this payment is taxable to the employee; however, tax free dividend paying policies can be used to offset against out of pocket additional employee tax expenditures. Additionally; the employer as an option can bonus additional “salary” to cover any tax liability.
Generally, these types of plans are used as supplemental plans to other company or organization retirement plans; however, they can stand alone and can be incorporated in various ways into employer benefit programs.
Executive Bonus Plans are simple to install, do not have major reporting, have no significant filing requirements, and no IRS approval is required.
The executive or other selected employee owns the policy and can access cash values through withdrawals of loans; additionally, a separate agreement can be made between employer and employee such that this access is limited until some conditions are met. This “Golden Handcuff” can be structure various ways. The executive or other selected participant names the beneficiary and should pre-mature death occur the benefit paid to beneficiary is income tax free.
Executive Bonus type insurance plans are state specific, and not all insurance companies offer policies to companies and or organizations in all states.
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The death benefit payable to a beneficiary upon the death of the insured is dependent on the claims paying ability of the issuing life insurance company.
