Executive Bonus Recruit Reward Help your business owner · 2019. 10. 14. · Recruit, Reward and Retain key employees – while still generating a current year business tax deduction

For Producer or Broker/Dealer Use Only. Not for Public Distribution.

Help your business owner clients Recruit, Reward and Retain their best employees

Executive Bonus


Agenda• Identify Potential Clients and Their

Concerns• What is Executive Bonus and How

Does it Work?• Case Studies and Action Plan• Consider MetLife for Business Owner

Clients

Please note: This document is designed to provide introductory information on the subject matter. MetLife does not provide tax and legal advice. Clients should consult their attorney and /or tax advisor before making financial investment or planning decisions.


Identify Potential Clients & Concerns



• Age: 25-60

• Income: $100,000+ (Typically)

• Successful owner of a small business • Would like to help

supplement key employee’s retirement income and provide death benefit protection

• They may be their own key employee

• Looking for a planthat is easy to

administer

Do You Know This Client?

• Wants to improve benefits package for key employees


The Concern

• I want to provide additional benefits only for the employees I choose.

• I want to control the amount (and conditions upon the receipt) of these benefits.

• I still want a current tax deduction for my business.

additional benefits

control

tax deduction


• Qualified Retirement Plans (QRPs) discriminate against highly compensated employees, limiting the percentage of income they may be able to contribute.

• QRPs force inclusion of rank and file employees and may be difficult and/or costly to administer.

• Success of business depends on one or more key employees.• Need to provide better benefits than competition to recruit, retain

and reward executives.• Want to effect some control over executive with these benefits.

Issues Facing These Clients


The Executive Bonus Plan



What is an Executive Bonus Plan?Executive Bonus Plans are simple to administer non-qualified plans. They are an innovative way to help Recruit, Reward and Retain key employees – while still generating a current year business tax deduction for the plan contributions.

simple to administer

tax deduction


The executive can receive income from the policy’s

cash value through withdrawals and loans.

(Loans and withdrawals will decrease the cash value

and death benefit)

In the event of the executive’s death, his/her designated beneficiary will receive the life insurance policy’s death benefit. The death benefit (less any outstanding loan balance) is paid to his/her beneficiaries income tax free.

The employer can directly pay the life insurance premiums to the insurance company or indirectly pay the bonus to the executive. The executive owns the policy and names a beneficiary of his/her choice.

The employer selects the key executive(s) who will participate in the plan and enters into an agreement to purchase a life insurance policy.

Executive access to policy cash value

Life Insurance Premium

Beneficiary

Executive

Employer

Life Insurance Policy

IRS

1

2

4

Bonus Taxable Income

Life Insurance Death Benefit

3

Tax deduction

Tax-free distributions assume that the life insurance policy is properly structured, is not a Modified Endowment Contract (MEC) and distributions are made up to the cost basis and policy loans thereafter. Should the policy lapse or be surrendered prior to the death of the insured, there may be tax consequences.

Corporate ResolutionHow it Works


Potential Solutions:Allows the Employer to Discriminate

• Employer has complete discretion over who is in the plan

• Employer can fund the plan generously, up to reasonable compensation guidelines*

• Employer can control when and how bonuses are paid

* Overall compensation must fall within reasonable compensation limits as determined by the Internal Revenue Service.


Potential Solutions:The Best Possible Staff

• Recruit• Reward• Retain• Retire


Potential Solutions: Tax Deductions vs. Control

• Golden handcuffs • Restrictive bonus design

With respect to a § 162 Executive Bonus plan, the employer should consult with and rely on independent legal and tax advisors regarding whether any executive bonus plan may be considered to be a welfare benefit plan under ERISA and if so, what requirements must be met.


Employee determines policy beneficiaries5

Discuss client’s goals for business1Determine if client has employees they would like

to provide additional benefits for2Determine scope of benefits to be provided

• Amount of bonus • Restrictive or Non-restrictive3Business owner enters into agreement with covered employees4

Initiate underwriting process on employee6

Fund life insurance policy8

Implementing an Executive Bonus Plan

Bonus to employees in form of premiums or cash7


Case Studies & Action Plan



Case Study: Darlene’s DesignsDarlene’s goals:

1. Reward Sam, her website designer, with additional life insurance for his family in the amount of 10x his pay

2. Help provide Sam with an alternate source of retirement income, if needed

3. Keep Sam from considering a job with one of her competitors

4. Not be forced to provide equal benefits to her other employees


Potential Solution: Executive Bonus

• Sam purchases a $1 million Universal Life insurance policy.

• Darlene's business pays expected annual premiums of $12,643 for 15 years - this is a taxable bonus to Sam.

• Darlene's business pays ‘double bonus’ of $4,917 to cover Sam's income taxes due on premium bonus (assumes 28% tax bracket for Sam).

*This example is for illustrative purposes only. Figures are based on MetLife's Guarantee Advantage Universal Life, male, age 35 with standard non-smoker health rating. Please see a full product illustration for additional details.

Results:Darlene enters into a restrictive executive bonus agreement with Sam


Potential Solution: Executive Bonus

*This example is for illustrative purposes only. Figures are based on MetLife's Guarantee Advantage Universal Life, male, age 35 with standard non-smoker health rating. Please see a full product illustration for additional details.

Results (cont’d):• Darlene's business takes income tax

deduction for total bonus of $17,560.• Sam must have Darlene's permission to

access the policy cash values for 10 years.• Sam has unrestricted access to policy cash

values after 10 years.• Upon Sam’s death, his beneficiaries receive

the income tax free death benefit less any outstanding loans or withdrawals.


Case Study:Steve’s Seafood Restaurants

Steve’s Goals:• Make sure that either he or his wife, Diane,

will be able to continue the business in the event of the other’s death

• Provide a death benefit for their children• Establish greater retirement savings

for him and Diane, should the business fail to fully support them in their retirement years


Potential Solution:Executive Bonus Benefits for Steve and Diane:• They are not forced to include other

employees in the plan• 100% of the contributions go to the owners’ plans*• No complex administration (or associated costs)• Death benefit to help continue the

business and provide for beneficiaries• Potential for supplemental income through

tax-advantaged loans and withdrawals**

* If the business is a pass through entity, an Executive Bonus plan may not provide an income tax deduction advantage when the owners are participants.**Loans and withdrawals will decrease the policy's cash value and death benefit. Investments in variable life insurance are subject to market risk, including loss of principal.


1 43 $37,375 $2,384,602 $40,712 $2,384,602 10 52 $334,266 $2,384,602 $529,229 $2,384,602 20 62 $581,272 $2,384,602 $1,515,026 $3,152,208

30 72 $124,445 $2,384,602 $2,539,706 $4,066,475

40 82 Lapse at age 74 Lapse at age 74 $4,103,056 $5,344,231

Policy Year Age Insured Cash Value Death Benefit Cash Value Death Benefit

(Assuming 0%(Assuming 0%(Assuming 8% (Assuming 8% rate of return and rate of return and rate of return and rate of return and

guaranteed charges) guaranteed charges) guaranteed charges) guaranteed charges)

Hypothetical Example. Actual results will vary. This example uses MetLife's Equity Advantage Variable Universal Life product. Male, Age 42, Standard non-smoker. Policy premium of $50,000 for 20 Years.

Assumptions for both charts: Guaranteed charges = Sales Load 5% for policy face amounts greater than $5,000,000 this charge is reduced to 3.5%.

Potential Cash Value and Death Benefit AmountsHow the Policy Can Build Cash Value…(Steve)


1 41 $38,319 $2,919,048 $41,695 $2,919,04810 50 $347,252 $2,919,048 $547,661 $2,919,04820 60 $609,366 $2,919,048 $1,563,084 $3,874,41730 70 $248,172 $2,919,048 $2,681,023 $5,026,46240 80 Lapse at age 75 Lapse at age 75 $4,505,956 $6,651,152

Policy Year Age Insured Cash Value Death Benefit Cash Value Death Benefit

(Assuming 0%(Assuming 0%(Assuming 8% (Assuming 8% rate of return and rate of return and rate of return and rate of return and

guaranteed charges) guaranteed charges) guaranteed charges) guaranteed charges)

Hypothetical Example. Actual results will vary. This example uses MetLife's Equity Advantage Variable Universal Life product. Female, age 40, Standard non-smoker. Policy premium of $50,000 for 20 years.

Potential Cash Value and Death Benefit Amounts

Assumptions for both charts: Guaranteed charges = Sales Load 5% for policy face amounts greater than $5,000,000 this charge is reduced to 3.5%.

How the Policy Builds Cash Value…(Diane)


Benefits to employer✔ Decide whom the plan covers✔ Determine the amount of the benefit✔ Restrict access to policy cash values for a

period of time✔ Obtain current business tax deduction✔ Recruit, reward and retain best employees

Benefits to employees✔ Provide life insurance death benefit for

executives’ beneficiaries✔ Provide potential source of supplemental

retirement income

Benefits to Your Clients


Benefits to You✔ Deepens client relationships✔ May free up additional assets for the

business owner✔ Creates potential for multiple sales✔ Potential for valuable new clients


Action plan

Have agreement drafted and signed by all parties5

Discuss strategic partnership1Identify and qualify clients2

Schedule time for client meetings and discuss approach 3Define client goals4

Initiate underwriting process on insured6Employer pays bonus7


MetLife Brand• One of America’s largest financial companies with roots as

far back as 1863• Serves over 90 of the top one hundred FORTUNE 500®

companies*

• Recognized as the Nation’s Largest Life Insurer**

* MetLife Worldwide corporate profile 2011

** Based on life insurance in-force. MetLife 2011.


Life Insurance Products are:• Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency

• Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value

BDVL21688 L1011213988 [1212] © 2011 METLIFE INC. PEANUTS © 2011 Peanuts Worldwide

Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. Clients should seek advice based on their particular circumstances from an independent tax advisor.

MetLife, its agents, and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. Clients should consult with and rely on their own independent legal and tax advisers regarding their particular set of facts and circumstances.

Prospectuses for Equity Advantage Variable Universal Life, and for the investment portfolios offered thereunder, are available from MetLife. The policy prospectus contains information about the policy’s features, risks, charges and expenses. Investors should consider the investment objectives, contract features, risks, charges and expenses of the investment company carefully before investing. The investment objectives, risks and policies of the investment options, as well as other information about the investment options, are described in their respective prospectuses. Clients should read the prospectuses and consider this information carefully before investing. Product features and availability may vary by state.

MetLife life insurance policies have limitations, exclusions, charges, termination provisions and terms for keeping them in force. There is no guarantee that any of the variable investment options in this product will meet its stated goals or objectives. The cash value is subject to market fluctuations so that, when withdrawn, it may be worth more or less than its original value. Guarantees are subject to the claims paying ability and financial strength of the issuing insurance company.

Life insurance is medically underwritten. Clients should not cancel their current coverage until their new coverage is in force. Surrender charges may be due on an exchange of one contract for another. A change in policy may require a medical examination. Surrenders may be taxable. Clients should consult their own tax advisors regarding tax liability on surrenders. Life insurance products are issued by MetLife Investors USA Insurance Company, Irvine, CA 92614, Metropolitan Life Insurance Company, New York, NY 10166, and in New York only by First MetLife Investors Insurance Company, New York, NY 10166. All guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company. Variable products are distributed by MetLife Investors Distribution Company, Irvine, CA 92614. All are MetLife companies. October 2011

Documents

Executive Bonus Recruit Reward Help your business owner · 2019. 10. 14. · Recruit, Reward and Retain key employees – while still generating a current year business tax deduction