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.
Agent
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.
Agent/Employer & Legal Advisors
Determine if a § 162 executive bonus plan meets the objectives of the business owner.
Employer & Legal Advisors
Establish the rules for an employee to receive a bonus.
Employer
Determine the budget that will be allocated towards the plan and each participant.
Agent
Determine the type of bonus and run a proposal using the executive benefit illustration template. (Visit Running Illustrations for an image of the template.)
Agent/Employee
Apply for the life insurance policy and get an underwriting approval.
Legal Advisors
Revise or draft an agreement stating the terms and requirements for the bonus.
Employer
Formally adopt the bonus plan in a corporate board resolution and document in the corporate minutes.
Employer
Submit the Top Hat Plan Statement on the Department of Labor website or visit Resources for more information.
Employer
Notify and coordinate premium payments with the payroll department or the corporate accountant.
Agent
If applicable, file the Restrictive Ownership Provision Request Form (Form #6502).
Agent
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.
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TC141219(0424)3 | Cat 106284(0424)