Making Heads Or Tails Of Executive Benefits

Making Heads Or Tails Of Executive Benefits

A simple coin toss is the most popular form of settling disputes or making decisions.  Subterfuge is often used to improve a participant’s odds.  If the caller sees through the “heads-I-win/tails-you-lose” ploy then the flipper can introduce a GMO known as a two-headed coin, usually a Washington quarter, available for a few bucks at any novelty store.

All this to illustrate that, for all the similarity of circumstances that the obverse and the reverse have on the dime, they can dictate significantly diverse patterns of events.  We use the phrase two sides of the same coin to describe the different, but closely related features, of an idea or course of action.  And so it is with certain non-qualified executive benefits.

All employers want economical ways to keep their key people.  You make your coin by helping them decide which side of the opportunities available best meet their needs and goals.

An Executive Bonus plan (EB) is the most common selective benefit format in the business marketplace, and a Death-Benefit-Only Plan (DBO) is the most overlooked.  Both have as their primary purpose to keep a key person with the company by providing life insurance protection.

Their primary difference is the amount of control the employer has – should the executive choose to leave.  Both are easy to explain, implement and administer.

With an EB plan, simply put, the employer pays for the executive’s personal insurance coverage.  In a DBO plan the employer promises to pay a benefit to a named beneficiary if the executive dies while employed, then buys a company-owned policy to fund against the contingency.  In either case the vehicle can be a permanent or term product.

Often with a DBO the employer chooses to roll the policy out to the executive at the time of retirement.  Even with term coverage the conversion privileges can make the transfer attractive if the executive has had health issues.

Consider the different sides of this coin:

 

Executive Bonus

Death Benefit Only

Policy Owner Executive Employer
Premiums Paid By Employer Employer
Taxation of Premiums Deductible to EmployerTaxable to Executive Not Deductible to EmployerNot Recognizable to Executive
Taxation of Death Benefit During Employment Tax-free to Executive’s BeneficiaryEmployer Not Involved Tax-free to EmployerDeductible When Paid to BeneficiaryTaxable to Beneficiary
Death Benefit After Employment Same – Executive Owns the Policy No Benefit to BeneficiaryEmployer Still Owns the Policy

Call to talk about executive benefits in particular and business planning issues in general that you should be discussing with every business client and prospect you have.

Executive Benefit Opportunities:

For what it’s worth – the simplest of all Super Bowl wagers made by bettors is on the outcome of the opening coin toss.  Those who prefer the NFC did well around and after the turn of the century.  The senior conference won the toss from 1999-2012 defying the odds (going in) of 16,384:1.