Executive Bonus Plan

IMPLEMENTATION

Although implementing an executive bonus plan is relatively straightforward, there are several steps to take and requirements to satisfy to ensure a successful implementation. The following represents those steps and requirements, as well as the person(s) with primary accountability for executing each step. Note that it is important that agents remain involved throughout the entire process to assist and consult as appropriate. 

Identify current or prospective business owner clients who value their best employees and who desire to reward and retain them with a nonqualified executive benefit.

Determine if a § 162 executive bonus plan meets the objectives of the business owner.

Establish the rules for an employee to receive a bonus.

Determine the budget that will be allocated towards the plan and each participant.

Determine the type of bonus and run a proposal using the executive benefit illustration template. (Visit Running Illustrations for an image of the template.) 

Apply for the life insurance policy and get an underwriting approval.

Revise or draft an agreement stating the terms and requirements for the bonus.

Formally adopt the bonus plan in a corporate board resolution and document in the corporate minutes. 

Submit the Top Hat Plan Statement on the Department of Labor website or visit Resources for more information.

Notify and coordinate premium payments with the payroll department or the corporate accountant.

If applicable, file the Restrictive Ownership Provision Request Form (Form #6502).

Upon policy issue, deliver the policy to the employee participant.

 

RUNNING ILLUSTRATIONS

There are two ways you can illustrate an executive bonus plan:  through NLGroup Illustration System or through InsMark. Following are instructions on how to access the appropriate sections of these applications, screenshots, and sample illustration proposals for our Case Study. 

NLGroup Illustration System

Click screenshots to view larger image.

Create a new illustration and select “Executive Bonus” from the Sales Concept option 

In the “Product and Executive Tab” enter the basic data on the insured 

In the “Plan Design Tab” enter the employee and employer tax bracket and the type of bonus (Single or Double) 

Enter the underwriting class in the ”Client Information Tab” 

In the ”Death Benefit and Funding Tab” you will enter the face amount, premium, income options and other basic design options. 

Next, complete the information in the remaining tabs and then preview the proposal or run the full illustration for review.

InsMark Illustration System

Click screenshots to view larger image.

Run a basic illustration on the National Life software and link it to Insmark 

Once a new case is added and named, Select “Executive Bonus Plan” from the Executive Benefits Tab 

Next, Enter the Employer and Employee Tax Brackets in the Basic Data Tab 

Enter the type of corporation and the “Single Bonus” or “Gross up Bonus” (Double Bonus) in the Plan Details Tab

Finally, you select the reports you want to view and select the preview button to see the proposal 

Resource Library
Additional Training

1 The use of cash value life insurance to provide a tax-free resource for accumulation goals assumes that there is first a need for the death benefit protection.  The ability of a life insurance contract to accumulate sufficient cash value to help meet accumulation goals will be dependent upon the amount of extra premium paid into the policy, and the performance of the policy , and is not guaranteed.  Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event.  Withdrawals up to the basis paid into the contract and loans thereafter will not create an immediate taxable event, but substantial tax ramifications could result upon contract lapse or surrender.  Surrender charges may reduce the policy’s cash value in early years.

2 Life insurance generally provides a tax-free death benefit (Per Internal Revenue Code § 101(a)(1). There are some exceptions to this rule. Please consult a qualified tax professional for advice concerning your individual situation.

National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.

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TC141219(0424)3 | Cat 106284(0424)