Salary Continuation Plans
A plan in which the employer agrees to provide a continuation of a key executive’s income for a defined amount and period of time. These plans can be funded by corporate dollars, or offered via an insurance policy2 designed to provide the agreed upon amount.
Selective Incentive Plans
A deferred compensation plan in which a key executive and the employer defer salary and bonus income for payment at a later date. There is no limit to the amount that can be deferred.
Split-Dollar Life Insurance3
Essentially, this is an arrangement whereby an executive and the employer agree to split the cost (premiums) and benefits (cash-value and death benefits) of a permanent life insurance policy. There are many variations to such an arrangement, including who the ultimate owner of the policy is, how the premiums are paid and by whom, how the benefits are split annually and, in the event of death, how benefits are split among others. In addition to being used as a fringe benefit for key executives, split dollar life insurance can also be used for estate planning and business continuation purposes, as well as group term replacement insurance.
Section 457 Plans
Deferred compensation plans set up by state and local governments and tax-exempt organizations that allow tax deferral of salary by key executives within an organization.
Executive Long-Term Care
Long-term care insurance provided to a company’s key executives on a selective basis. Premiums are tax deductible to the corporation, and not considered taxable income for the executives.
Restricted Executive Bonus Plan (REBA)
A written agreement between a company and key executives that states the employer will provide a “bonus” that pays premiums on a life insurance policy that is owned by an executive, or an irrevocable trust of an executive, while employed by the company. In this case, the executive cannot access policy values or surrender the policy until all bonuses vest.
Retirement Income Plans (RIP)
A benefit plan intended to provide supplemental retirement income, the executive and the company enter into a formal agreement whereby the employer creates and informally funds a benefit account. When the executive retires, the employer pays benefits as agreed and recovers costs by way of tax-free loans and withdrawals.
412(i) Fully Insured Defined Benefit Plans
A qualified retirement plan that meets the special requirements of IRC § 412(i), making it exempt from some of the funding rules and independent actuarial determinations associated with traditional defined benefit plans. Intended to provide a fixed retirement income for high-level executives in small businesses, this defined benefit pension plan is funded entirely with life insurance and deferred annuity products to accumulate funds in pre-retirement years.
401(k) Alternative Plan (401kap)
This arrangement allows an executive to defer a portion of his or her income on a pre-tax basis in amounts that exceed qualified plan limits. In this case, the employer creates and informally funds a deferral account with the executive’s deferred income, as well as any additional contributions. At retirement, funds are paid out as agreed and the company recoups a portion of the costs via tax-free loans and withdrawals.