Executive Bonus Plans


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The most precious asset of any business is its executive team. Part of the struggle that closely held (and public) companies face is their ability to attract and retain key employees. An executive bonus plan may be an effective strategy to hire away from your competition and keep your top people with your firm.

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Executive Bonus Plans

  1. 1. Attract. Retain. Succeed. Executive Bonus Plans funded with whole life insurance LI7248 CRN201203-130967
  2. 2. Important Information The information provided is not written or intended as specific tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. 2
  3. 3. Agenda A critical business challenge What do executives want? Executive Bonus Plans… A simple & effective solution 3
  4. 4. Attracting and retaining talent How critical are top performers to your success? How do you attract them? How do you lock them into your business? 4
  5. 5. Rewarding talent How do you reward top performers? What additional “selective” benefits have you considered offering? Profit sharing? -- Supplemental Executive Retirement Plan? Non-Qualified Deferred Compensation? -- Incentive stock? High admin expense? Too complex? 5
  6. 6. Defined benefit pension plans face extinction Savings burden and… Investment risk shifted to employees… 6
  7. 7. Americans saving less Consumption Epidemic…? 7 For additional information on how this statistic is calculated, go to www.bea.gov.
  8. 8. Emerging affluent in need Compensation Discrimination at higher incomes How will your executives live on 20% of their income in retirement? How will you? 8
  9. 9. Other factors Longer life spans Uncertainty surrounding the future of Medicare and the overall cost of health care The impact of market volatility on retirement account balances 9
  10. 10. Executives need YOUR help! They feel that retirement savings programs are the most valuable benefits a company can provide 14% Most Valued Benefits to Executives 15% Other Stock Options 71% Retirement Plans They also rely on their employer for over half of their life insurance coverage SOURCE: The Value of Executive Benefits, LIMRA 2006 10
  11. 11. The executive bonus solution What is an Executive Bonus Plan? A fringe benefit funded with whole life insurance Provided to a select group of key executives and/or business owners Helps provide protection during working years Helps provide supplemental income1 during retirement 1 Distributions under the policy (including cash dividends and partial/full surrenders) are not subject to taxation up to the amount paid into the policy (cost basis). If the policy is a Modified Endowment Contract, policy loans and/or distributions are taxable to the extent of gain, and if the owner is under 59 ½ the distribution is also subject to a 10% tax penalty. Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. 11
  12. 12. How does it work? 12
  13. 13. What are the benefits? To the business Effective recruiting and retention tool A selective benefit Easy to implement and administer Immediate income-tax deduction To the executive Owned by executive Generally income tax-free death benefit Tax-advantaged growth and access to cash1 13
  14. 14. Plans can be designed… To reward top performers To address retirement and protection needs To help minimize or eliminate the executive’s after-tax costs So bonuses can create a strong incentive to stay with your company To stay within your budget 14
  15. 15. Wrap Up Businesses need a simple, effective, and flexible way to attract, retain, and reward Executives are looking to their employers for help Additional sources of retirement income1 Life insurance protection Executive Bonus Plans offer a simple and effective solution to both business and executives 15
  16. 16. Next steps Confidential Business Profile Establish objectives to address your needs Select a time to review a plan proposal 16
  17. 17. © 2010 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives. 17