Comprehensive Employee Benefit Programs

Providing competitive and flexible employee benefits is essential for attracting and retaining top talent.

Here’s a breakdown of various employee benefit plans and how they can enhance your workforce while supporting your business goals:

Split-Dollar Plans (SDPs)

A Split-Dollar Plan isn’t a specific type of life insurance policy, but rather a funding arrangement between an employer and an employee. These plans are typically funded with whole life, cash value, or continuous-premium life insurance and split benefits in various ways:

• Death Benefits: Shared between the employer and the employee’s beneficiary.
• Cash Value: The living benefit is also divided.
• Premiums: May be split, with employers often covering the portion equivalent to the annual increase in cash value.

For example, if a policy’s annual premium is $500 and the cash value grows by $420, the employer might pay $420 while the employee contributes $80. Upon the insured’s death, the employer would receive the cash value, and the balance would go to the employee’s beneficiary.

SDPs are particularly valuable for employees who may not otherwise afford life insurance coverage. Employers can selectively offer these plans and even use variations such as single bonus plans, reverse split-dollar plans, or employer-funded plans. These arrangements are also common in family businesses or among stockholders.

Deferred Compensation Funding

Deferred compensation plans allow employers to pay a highly compensated employee at a later date—typically upon retirement, disability, or death. These non-qualified plans don’t offer the same tax advantages as qualified plans but remain a popular option for executive benefits.

Employers often use cash value life insurance or annuities to fund these arrangements, ensuring promised benefits are available when needed.

Salary Continuation Plans

Similar to deferred compensation plans, a Salary Continuation Plan is employer-funded. These plans guarantee income payments to an employee’s family or estate in the event of their death, disability, or retirement.

Corporate-Owned Life Insurance (COLI)

COLI policies are often used to insure key employees. The premiums are typically tax-deductible, and the proceeds are tax-free up to $50,000. Any benefits exceeding this amount must be reported by the employee as taxable income.

Many COLI policies now include a change of insured provision, allowing employers to transfer coverage to a new employee if the original insured retires or leaves the company. This flexibility avoids the cost of purchasing a new policy while maintaining coverage continuity.

Corporate-Owned Annuities

Corporate annuities differ from individually owned annuities in their tax treatment:

• If a corporation names a natural person as the annuitant, the interest earned is tax-deferred.
• If the annuitant is a non-natural entity (e.g., the corporation), the interest is taxable as ordinary income in the year credited.

There are exceptions to the non-natural person rule, such as when annuities are held in trust or under qualified retirement plans like TSAs or IRAs.

Executive Bonus Plans

Also known as Section 162 bonus plans, these arrangements allow employers to pay a bonus to an employee, who uses it to purchase a life insurance policy.

• The Employee Owns the Policy: The bonus covers premiums, and the employer may deduct the bonus payment as a business expense.
• Tax Implications: The bonus is treated as taxable income for the employee, but life insurance proceeds are paid to the beneficiary tax-free.

These plans are simple to administer and attractive for executives seeking personal life insurance coverage through employer-supported funding.

These benefit options offer diverse ways to protect your employees while strategically managing business resources. Whether you’re considering a Split-Dollar Plan, Executive Bonus Plan, or Corporate-Owned Life Insurance, the right solution can deliver meaningful value to both your team and your business.