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Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Executive Bonus PlanExecutive Bonus PlanExecutive Bonus PlanExecutive Bonus PlanPresented To:
Presented By: Mark L. SimonFinancial Services ProfessionalCalifornia Insurance License No.
0E41454
2 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Please Be Advised:Please Be Advised:
All specific legal and tax questions should be referred to your legaland tax advisers.
3 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Executive Bonus PlanExecutive Bonus Plan
Reward your key people with a simple yet powerful fringe-benefit plan.
4 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Consider ThisConsider This
Which of your employees is vital to the success of your business?
Owners?
Executives?
Officers?
Key Employees?
5 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Key People Are Valuable!Key People Are Valuable!
Wouldn’t you like to take steps to retain, motivate and reward them?
Tip: Take steps to place “golden handcuffs” on your most important people.
6 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
A Simple Yet A Simple Yet Powerful SolutionPowerful Solution
An executive bonus plan uses tax-deductible contributions to fund insurance policies covering the lives of your key people.
Attract
MotivateRetain
7 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Plan BenefitsPlan Benefits
For you as a businessowner:Attracts the best of the bestKey employee retention and
motivationSimplicitySelectivityFlexibilityTax deduction
8 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Plan BenefitsPlan Benefits
For your key people:Life insurance protectionPortabilityPolicy cash values may be creditor
protected*Income-tax free death benefits**Tax-advantaged access to policy cash
values*** Creditor protection varies by state** Under current tax laws
9 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Incorporate the Best Features Incorporate the Best Features of Qualified Retirement Plansof Qualified Retirement Plans
Create a tax-deductible business expense
Accumulate money on a tax-deferred basis
Provide benefits for retirement, disability and death
10 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Avoid the Worst Features Avoid the Worst Features of Qualified Retirement Plansof Qualified Retirement Plans
Allow for choice of participantsEliminate government filings and
paperworkSignificantly reduce administration
11 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Comparison of Comparison of Fringe-Benefit PlansFringe-Benefit Plans
QualifiedPlan
Executive Bonus
Contributions deductible by
employerYes Yes
Contributions taxable
to executiveNo Yes
Receipt of retirement income
taxable to executive
Yes No
ERISA requirements Yes No
12 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
A Level Playing Field?A Level Playing Field?
*Comparison assumes a qualified retirement plan benefit of 60 percent of final salaries shown above, subject to the IRC section 401(a) compensation limit of $245,000 for 2008.
Comparison of retirement benefits as a percentage of final salary*
60% 58%
49%
37%
0%
10%
20%
30%
40%
50%
60%
$200K $250K $300K $400K
13 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Executive Bonus as a Executive Bonus as a Supplement to Qualified PlansSupplement to Qualified Plans
Use Executive Bonus to overcome the “reverse discrimination” that pension plans have against highly compensated individuals.
14 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
How it WorksHow it Works
Business pays the premium
Business receives a tax deduction
Insurance policy is purchased
BusinessExecutive
Heirs
Insurance Insurance co.co.
Premium is a taxable bonus
Executive owns the policy
• Executive is taxed on bonus
• Cash values build tax-deferred
• Policy cash values available for retirement or college funding
• Cash values may be creditor protected (varies by state)
• Death benefits may be used for estate settlement
Income-tax free death benefit and access to policy cash value
15 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Tax AspectsTax Aspects
Income TaxEstate TaxGift Tax
16 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Income Tax: EmployerIncome Tax: Employer
Premium payments qualify employer for an income-tax deductionAn ordinary and necessary business
expenseNo exposure to the alternative
minimum tax
17 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Income Tax: ExecutiveIncome Tax: Executive
Premiums paid by the employer are taxed to the executive
Income-tax free death benefitsTax-advantaged access to policy
cash values for:Retirement incomeCollege expensesOther needs
18 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Estate TaxEstate Tax
Life insurance proceeds are included in the executive’s estate
Tip: To remove the policy from the executive’s estate, consider transferring the policy to a third party such as a child or an irrevocable life insurance trust.
19 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Gift TaxGift Tax
If the employee gifts the policy to a third party, the gift may be taxable, subject to the annual gift tax exclusion and lifetime exemption amounts
Tip: The value of the gift is typically the policy’s cash value at the time of the gift.
20 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Plan Design AlternativesPlan Design Alternatives
Custodial Executive BonusDouble BonusExecutive Contribution
21 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Custodial Executive BonusCustodial Executive Bonus
Allows employer to place restrictions on the employee’s ability to exercise policy ownership rights.
Restricts access to policy cash valuesRestriction removed after a stated period
of timeEnhances employer control
22 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
How Custodial How Custodial Executive Bonus WorksExecutive Bonus Works
Business pays the premium
Business receives a tax deduction
Insurance policy is purchased
BusinessExecutive
Heirs
Insurance Insurance co.co.
Premium is a taxable bonus
Executive owns the policy
• Cash values build tax-deferred
• Proceeds may be used for estate settlement
• Accumulated cash value for retirement or college funding, subject to employer’s consent
• Cash values free from claims of creditors
• Employer has “veto” power over executive’s access to policy cash values
Employer restricts executive’s ability to exercise ownership rights
Income-tax free death benefit
23 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
When to Use Custodial When to Use Custodial Executive BonusExecutive Bonus
To prevent a competitive start-up by the executive
To give the employer control over exercise-of-ownership rights
To force the employee to save for retirement
Tip: This type of arrangement gives the employer “veto” power over the executive’s access to policy cash values.
24 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
It’s About ControlIt’s About Control
Executive Bonus
Custodial Executive
Bonus
Contributions Deductible by Employer
Yes Yes
Contributions Taxable to Executive Yes Yes
Receipt of Retirement Income Taxable to Executive
No No
ERISA Requirements No No
Enhanced Employer Control No Yes
25 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Double BonusDouble Bonus
Employer bonuses an additional sum to cover taxes due from the executive bonus plan.
Tip: With a double bonus, the executive doesn’t have to reach into his/her own pocket to pay taxes.
26 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
How Double Bonus WorksHow Double Bonus Works
Business pays the premium
Business receives a tax deduction
Insurance policy is purchased
BusinessExecutive
Income-tax free death benefit and access to policy cash value Heirs
Insurance Insurance Co.Co.
Premium is a taxable bonus
Executive owns the policy
• Cash values build tax-deferred
• Proceeds may be used for estate settlement
• Accumulated cash value for retirement or college funding
• Cash values free from claims of creditors
• No out-of-pocket taxes due by executive
Employer makes double bonus
27 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Executive ContributionExecutive Contribution
Allows employee to add their own money to the premium.
Increases death benefit and cash value available under the policy funding the plan
Supplements retirement savings
28 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
How Executive How Executive Contribution WorksContribution Works
Business pays the premium
Business receives a tax deduction
Insurance policy is purchased
BusinessExecutive
Heirs
Insurance Insurance Co.Co.
Premium is a taxable bonus
Executive owns the policy
• Cash values build tax-deferred
• Proceeds may be used for estate settlement
• Accumulated cash value for retirement or college funding
• Cash values free from claims of creditors
• Executive’s contribution increases policy cash value and death benefit
Executive’s contribution
Executive’s contribution increases policy cash value and death benefit
29 Copyright 2009, The Ohio National Life Insurance CompanyD-0287_01-09
Initiating a PlanInitiating a Plan
Name, gender and date of birth of executives to be covered
Amount of coverage desired or premium commitment
Tax brackets of the business and individual executive(s)
Required Information
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