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- Title
NONQUALIFIED BENEFIT PLANNING--WHAT, WHEN, AND WHY.
- Authors
Landsberg, Richard D.
- Abstract
The section answers questions on nonqualified benefit planning. Executive Bonus arrangements are nothing more than a pay-raise for executives. For the corporation, the U.S. Internal Revenue Code provides a tax incentive. Executive Bonus arrangements are cash-flow leverage. Properly structured, the plan allows an executive to acquire life insurance coverage with less out-of-pocket cash flow on the executive's part than if the executive purchased it on his or her own. Since the executive owns the policy from the inception, there is no incentive with such an arrangement to induce the executive to remain with the company. The ideal candidate for an executive bonus arrangement is a business in a relatively high combined-income tax bracket that wants to provide fringe benefits to favored executives in a lower income tax bracket. The bonused premium paid by the employer under an executive bonus arrangement is charged to the insured as ordinary compensation income. In many cases, the employer will assist the employee even further by paying an amount sufficient to pay both the premiums and the tax on the bonus. Split-dollar arrangements are used when the corporation wants to reward yet tie the executive to the need for employer funding of the arrangement.
- Subjects
UNITED States; NONQUALIFIED pension plans; EMPLOYER contributions; INTERNAL revenue law; TAX incentives; EXECUTIVE compensation; EMPLOYEE bonuses
- Publication
Journal of Financial Service Professionals, 2004, Vol 58, Issue 2, p22
- ISSN
1537-1816
- Publication type
Article