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Exceptional Employees – Hard to Find and Harder to Keep                                            insurance arrangementSe...
Talented employees are the lifeblood of your business. Without them, youface an even tougher battle in today’s competitive...
Potential Advantages for the Employee     k       Additional contributions – The employee can contribute additional dollar...
How a S.O.L.A.R. Insurance Arrangement Works                   The company and the      1                   employee agree...
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Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangements

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Transcript of "Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangements"

  1. 1. Exceptional Employees – Hard to Find and Harder to Keep insurance arrangementSelf Owned Life And Retirement (S.O.L.A.R.) Insurance ArrangementsThese materials are not intended to and cannot be used to avoid tax penalties and they were prepared to support thepromotion or marketing of the matters addressed in this document. Each taxpayer should seek advice from an independent taxadvisor. The ING Life Companies and their agents and representatives do not give tax, legal nor lending advice.LIFE INSURANCE Your future. Made easier.®
  2. 2. Talented employees are the lifeblood of your business. Without them, youface an even tougher battle in today’s competitive business world. In the past, employersattracted, motivated, and retained their more talented employees by offering a combinationof salary, incentive bonus, and qualified retirement benefits. Unfortunately, these traditionalcompensation strategies fail to address several important issues: k The cost of replacing key employees is getting higher. "Keep Your SuperStars, Save Millions of Dollars," American Gas Magazine, March, 2008 k ERISA makes it difficult to single out and reward highly- compensated employees using qualified retirement plans. David Miller, "Secrets to Protecting Your Organization and Retaining Key Employees," REESOURCE SENIOR LIVING, November 2010 k Salary increases and bonuses have short-lived impact on long-term job satisfaction and loyalty to the business. Abhishek Kamdi, "Workplace Environment and its Impact on Employee Performance," Human Resource Management Blog, November 22, 2009 k Salary and bonuses force employees to pay taxes on income now even though the funds may not be needed until later. IRC § 61 A Self Owned Life And Retirement (S.O.L.A.R.) Insurance Arrangement is a simple tool employers can use to reward their most valued employees. The S.O.L.A.R. Insurance Arrangement can be offered selectively as a benefit to encourage the retention of employees the business can’t afford to lose. In a S.O.L.A.R. Insurance Arrangement, an employee purchases an ING Indexed Universal Life - Global Plus (ING IUL-Global Plus) life insurance policy, issued by Security Life of Denver Insurance Company, to provide death benefit protection and to help accumulate funds for retirement. The arrangement can be funded through employer contributions, through after-tax contributions from the employee, or a combination of both. While premium payments must be treated as ordinary income, the employee can borrow money from the ING IUL-Global Plus life insurance policy to pay income taxes. The employee can use the policy as a source of potential supplemental retirement income, as a source of survivorship benefits, or both.
  3. 3. Potential Advantages for the Employee k Additional contributions – The employee can contribute additional dollars to Exceptional Employees – Hard to Find and Harder to Keep the arrangement. k Supplemental Retirement Income1 – Bonuses are used to purchase a life insurance policy which may help to accumulate cash value. k Reduce “Out-of-Pocket” Costs1 – By taking a policy loan to pay income taxes, the S.O.L.A.R. Insurance Arrangement can reduce the current costs to the executive. k Tax-Deferred Growth – No income tax is payable on any money accumulating inside the life insurance policy. k Tax-Free Income1 – Provided the life insurance policy is not structured as a modified endowment contract (“MEC”), the executive will be able to attain tax-free income through a combination of policy withdrawals and loans. k Income Tax-Free Death Benefit2 - The life insurance policy provides protection for the executive’s family in the event of death. k No IRS Distribution Requirements.Potential Advantages for the Employer k Immediate Tax Deduction – Payments made by the employer are treated as bonuses and are income tax deductible under IRC § 162 (so long as the executive’s total compensation is considered reasonable). k Flexible Contributions – There is no required schedule for premium contributions to a S.O.L.A.R. Insurance Arrangement. Premiums can be designed to meet the changing needs of the employer. k Selective Benefit – A S.O.L.A.R. Insurance Arrangement can be offered on a selective basis. Unlike qualified retirement plans, there is no requirement that the benefit be available on a nondiscriminatory basis. k Additional Incentives – The employer could choose to pay the policy loan interest if the employee has chosen to pay the income taxes from policy values. k Golden Handcuffs – The employer can create “Golden Handcuffs” by implementing a Restricted S.O.L.A.R. Insurance Arrangement. k Simple Administration – Some nonqualified benefits (such as NQDC/SERP arrangements) can require significant plan administration (maybe even requiring a third-party administrator). A S.O.L.A.R. Insurance Arrangement is a potentially simple arrangement requiring little or no plan administration.1 A portion of the policy’s surrender value may be available as a source of supplemental retirement income through policy loans and withdrawals. Income tax free policy distributions may be achieved by policy loans or withdrawing to the cost basis (usually premiums paid). This assumes the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered with an outstanding loan. Policy loans and withdrawals may reduce or eliminate index credits, generate an income tax liability, reduce available surrender value and reduce the death benefit, or cause the policy to lapse. Additionally, loans may limit your ability to make elections to the Indexed Strategy; if a loan results in amounts being deducted from a block prior to its block maturity date, no elections from the Fixed Strategy to the Indexed Strategy will be processed in the 36 months following the loan. Select Loans have the risk that policy performance may be lower than projected if the amount credited to the account value in the Fixed Strategy and/or Indexed Strategy is less than the fixed 6% interest charged on the policy loan.2 Death benefit proceeds from a life insurance policy are generally income tax-free, and if properly structured, may also be free from estate tax.
  4. 4. How a S.O.L.A.R. Insurance Arrangement Works The company and the 1 employee agree that personal # life insurance protection and the related potential cash value accumulations are important components of the employee’s overall compensation package. # 2 The employee purchases an ING IUL-Global Plus policy insuring his or her life. 3 The company makes the # premium payments on this policy, which are taxed as additional compensation to the employee and create a current deduction for the employer. Optionally, the company may provide an additional cash bonus to the employee to cover the income tax associated with the premium payment. 4 The employee may pay the # income taxes on the bonused premium payments using policy loans from the ING IUL-Global Plus policy values.3 # 5 The policy cash values may be available to supplement the employee’s retirement income through withdrawals and loans. Policy loans and withdrawals may reduce or eliminate index credits, generate an income tax liability, reduce available cash value, and reduce the death benefit or cause the policy to lapse. The policy death benefit generally will be paid income tax free to the employee’s beneficiaries. 3 Select Loans have the risk that policy performance may be lower than projected if the amount credited to the account value in the Fixed Strategy and/or Indexed Strategy is less than the fixed 6% interest charged on the policy loan.The ING Life Companies and their agents and representatives do not give tax or legal advice. This information is general in nature and not comprehensive, the applicable laws changefrequently and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation.ING Indexed Universal Life–Global Plus (ING IUL-Global Plus), policy form series 1182-12/10, with both a fixed and an equity indexed strategy, may vary by state and may not beavailable in all states and is issued by Security Life of Denver Insurance Company (Denver, CO) a member of the ING family of companies.All guarantees are based on the financial strength and claims paying ability of Security Life of Denver Insurance Company who is solely responsible for the obligation of its own policies. Shelly Alvarez© 2010 ING North America Insurance Corporation cn66420122012 President/General Agent Shelly Alvarez Insurance & Financial Svcs. PLLC (210) 827-8787 shelly@shellyalvarez.com www.shellyalvarez.com HTTP://ING.US158014 12/20/2010

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