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SUPPLEMENTAL EXECUTIVE COMPENSATION & NON-QUALIFIED PLAN DESIGN
SERP and Executive Deferred Compensation programs are incentive plans that reward selected key executives. These programs are tailor-made to fit the circumstances and desires of the executive and his or her corporation. On a tax-advantaged basis, these plans provide supplemental compensation at retirement or at other appropriate selected times.
Non-qualified Deferred Compensation
In an NQDC plan, the executive agrees to forgo receipt of a portion of current compensation under an agreement to receive that compensation at some future date. This reduces current income taxes for the executive; however, it also postpones deductibility by the employer until the deferred compensation is actually paid to the executive. In order to provide for current tax deferral, the plan must contain a "substantial risk of forfeiture," such as a provision that the executive must stay with the employer until a specified future time.
Bonus Plans
Under a bonus plan, the employer pays for a benefit for the executive and includes the cost in the executive's current compensation. One benefit frequently provided in this manner is permanent life insurance. The advantage to the executive is that the policy is owned by him or her with no strings attached. The disadvantage to the employer is that most bonus plans do not provide golden handcuffs.
Split Dollar
Split dollar is a method by which the executive and the employer split the costs and benefits of a life insurance policy. In a basic split dollar plan, the employer pays most or all of the premium and recovers its outlay at the executive's termination or death. In endorsement split dollar, the employer owns the policy and all of the cash value. The executive has the right to name a personal beneficiary for some portion of the death benefit of the policy and is taxed based on the cost of an equivalent term insurance contract, priced either according to the insurance carrier's term rate or government tables. In collateral assignment split dollar, the executive or a third party owns the policy and all of the cash value in excess of the employer's share. These plans have lost some of their appeal since the IRS announced new regulations. Where collateral assignment split dollar was previously taxed based on term rates, the new regulations will characterize premium payments as no-interest loans. This significantly increases the executive's income tax impact.
Securities and advisory services offered through Ameritas Investment Corp. (AIC), member FINRA/SIPC. AIC and Rosenbaum Financial LLC are not affiliated. Licensed for insurance sales in CA, OR and WA. Licensed for securities sales in OR. This is not intended as an offer of services or a solicitation of sales in any jurisdiction where we are not licensed or the products described are not available.