Experienced executives at successful companies are hot commodities, especially to competitors looking to replicate your success by hiring them away. As the competition to attract these professionals intensifies, a compensation package that includes supplemental executive benefit plans will help you retain, motivate and recruit the talented people who are the driving force behind your business.
Many standard employee benefit plans don’t give highly compensated executives the means to save for a retirement that suits their standard of living or provide life and disability insurance benefits that will allow their families to continue their current lifestyle. You can supplement your core benefits plan with salary continuation plans, deferred compensation plans and others geared to your key executives. Companies can even pick and choose who participates in them.
A good executive benefits plan doesn’t have to be complicated. SBC will assist companies design, communicate and administer a plan within the framework of your company’s financial and business strategies. We have relationships with some of the nation’s most creative design groups. Together, we strike a balance between meeting the needs of your executives and the cost per benefit trade-off to your bottom line. And the third-party administrators we work with offer tax, legal and accounting solutions to avoid penalties or unexpected taxation.
Premium Financing
Allows high net-worth individuals to allow a third-party to finance their large life insurance policy premiums. A loan is provided, which is collateralized by life insurance policy, which pays the premiums. In most situations, the insured only has to pay interest on the loan which ultimately saves many thousands of dollars in premiums, while protecting the family, estate and estate taxes, and/or business.
Premium financing allows a high net-worth individual to obtain a large death benefit, which may be used to keep estate whole at time of death, without having to pay for the cost of life insurance.
Executive Financing
Another strategy exists which helps executives maintain their current lifestyle in the event of a chronic illness, premature death, or an inability to sufficiently save for retirement. Through asset protection, earnings are critical to insuring one’s ability to save for retirement. Due to limitations, traditional retirement plans are typically insufficient for high-income earners.
The strategy utilizes leverage to help acquire more of the benefits needed to financially protect the employee and family. Its unique fusion of financing and life insurance offers more protections and the potential to earn more for retirement than could be obtained without leverage.
By utilizing premiums, which are jointly funded by bank financing and the participant or employer. The bank financing provides the majority of the total contribution to the plan, and the life insurance policy itself is the full security for the loan. This strategy is specifically designed so that the participant is not required to go through financial underwriting or sign any loan documents.
Corporate Owned Life Insurance (COLI)
Purchased, and owned, by the company on select executives which primarily finance employee benefit plan expenses and increase net income. For example, companies that have substantial costs for medical, group life, and other basic insurance as well as qualified and nonqualified benefit plan expenses can finance these costs with COLI. In addition to being the owner, the company is also the beneficiary of the policy. Ultimately, the cash value in the policy, which builds very quickly, is held as an asset on the company’s balance sheet.
Executive Benefit Plan (EBP)
Employers seeking to obtain tax-deductible compensation bonuses for key executives may look to an Executive Bonus Plan. As the company pays, and deducts, the premiums to assist those employees with building and protecting wealth, the resulting income is taxable for the employee, who may be reimbursed for the taxable event through cash withdrawals from the policy. Employers providing a EBP, do so to secure a competitive advantage in attracting and retaining premier talent.
The most commonly used EMP is a Deferral Plan which ultimately provides a means for highly compensated employees to defer pre-tax income for retirement.
Captive Insurance
A captive is an insurance company which is owned (wholly or in part), by a business or business owner, which insurance the risks of that particular business. They were once the domain of only larger companies and the Fortune 500, there are now well over 5000 captives, many insuring successful middle market companies.
- Potential Benefits of a Captive
- Lower Insurance Costs
- Improved Cash Flow
- Risk Management Improvements
- Access to Coverage
- Tax Benefits
To learn more about captives, and to see if they may be an option for you and your organization, contact us today.
