Reward and retain key executives Executive Benefits Planning ©2014 Voya Services Company. All...

Reward and retain key executives

Executive Benefits Planning

©2014 Voya Services Company. All rights reserved. CN0317-8764-0316


Disclosures

The Voya™ 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 change frequently, and the strategies suggested may not be suitable for everyone. You should seek advice from your tax and legal advisors regarding your individual situation.

These materials are not intended to be used to avoid tax penalties, and were prepared to support the promotion or marketing of the matter addressed in this document. The taxpayer should seek advice from an independent tax advisor.

Life insurance products are issued by ReliaStar Life Insurance Company, ReliaStar Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company. Within the state of New York, only ReliaStar Life Insurance Company of New York is admitted, and its products issued.All companies are members of the Voya™ family of companies.


Today’s competitive business environment

Business owners today are faced with increased competition for talented key executives

Traditional compensation strategies fail:

–Short-lived impact–Tax law changes


Executive benefits objectives

Executives want to:–Reduce tax burden and defer taxation of income

until the income is actually neededEmployers want to:

–Provide executives with incentives to remain with the company


Uses for nonqualified plans

Nonqualified plans can be used: To recruit, retain, and reward key Executives

To counter “reverse-discrimination”

To provide income tax-deferral for Executives

To act as “Golden Handcuffs”

To recruit, retain, and reward outside board members


Nonqualified plans are flexible

Qualified Plans:– Contribution limits– Must be non-discriminatory– Funding & reporting requirements– Penalties for early distributions

Nonqualified Plans:– No contribution limits– Can be offered selectively– Minimal reporting requirements– No penalties for early distributions


Customize NQDC plans

Select Plan Design Based on Mutually Desired Features


Alternative plan designs

NQDC or SERP Arrangements

Split Dollar Loan Arrangements

NQDC/Split Dollar Combo Arrangements

Endorsement Split Dollar Arrangements

Survivor Income DBO Arrangements

Executive Bonus (§ 162) Arrangements

Restricted Executive Bonus Arrangements (REBAs)


Factors to consider

Deferral of Income Taxation


Factors to consider


Current Tax Deduction


Factors to consider



Supplemental Retirement Income


Factors to consider




Protection from Employer’s Creditors


Factors to consider





“Golden Handcuffs”


Factors to consider






Income Tax-Free Retirement Distributions*

*Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid) then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.


Factors to consider




Protection fromEmployer’s Creditors


Income Tax-FreeRetirement Distributions*

Flexibility



Factors to consider







Flexibility

Income Tax-Free Death Benefits



Factors to consider







Flexibility

Income Tax-FreeDeath Benefits

Cost Recovery



Factors to consider







Flexibility


Cost Recovery

ERISA or “Top Hat” Limitations



Factors to consider







Flexibility


Cost Recovery


Ease of Administration



Factors to consider







Flexibility


Cost Recovery


Ease of Administration

Balance Sheet Impact*Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid) then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.


NQDC & SERP Arrangements

Employer promises Executive future benefit (defined contribution or defined benefit)

Employer informally funds promise by purchasing life insurance policy on Executive

At retirement, or at death, Executive receives promised benefit

Arrangement is subject to IRC § 409A



Employer Executive

2

Voya Life Companies

34

NQDC or SERP Agreement

1

5



Advantages Tax deferral for Executive Provides source of supplemental

retirement income “Golden Handcuffs” Cost recovery available

to Employer

Disadvantages

Subject to § 409A rules

Retirement benefits subject toincome taxes

Funding asset is subject to claimsof Employer’s creditors

Timing of payments must be“fixed” when plan is adopted;no flexibility

Death benefit paid to Executive’ssurvivors subject to income tax*

Subject to ERISA “Top Hat” limitations

* The parties could use a split-dollar arrangement to make the death benefits income tax-free. However, economic benefits of the arrangement would create a current tax liability.



Executive purchases life insurance policy

Employer pays policy premiums and retains collateral assignment

At retirement, Executive reimburses Employer for premiums paid

Policy’s cash values available to Executive as supplemental retirement income



Employer ExecutiveSplit Dollar Agreement

1

2

Voya Life Companies

4

3



Advantages May provide a source of

supplemental retirement income Not subject to claims of

Employer’s creditors Tax-preferred retirement benefits Flexibility on timing

of distributions Death benefit not taxable

as income* Not subject to ERISA

“Top Hat” rules

Disadvantages Imputed Interest taxed as income

to Executive Limited cost recovery available

to Employer

*Proceeds from a life insurance policy are generally income tax-free.


Endorsement Split Dollar Plans

Employer promises benefit to Executive’s survivors upon his or her death

Employer purchases Life Insurance to fund promised benefit

Executive taxed annually on “economic benefit” or “term costs”

Death benefit is received by Executive’s beneficiaries income tax-free*

* Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax.



Employer Executive

2

Voya Life Companies

23

Split Dollar Agreement1

3

IRS



Advantages

Cost recovery available to Employer

Avoids ERISA and “Top-Hat” limitations

Simple plan administration

Death benefit received by Executive’s survivors income tax-free*

Disadvantages

No supplemental retirement income provided

No “Golden Handcuffing



Survivor Income DBO Plans

Employer promises benefit to Executive’s survivors upon his or her death

Employer purchases Life Insurance to fund promised benefit

Death benefit is taxable to Executive’s beneficiaries as Income in Respect of a Decedent (“IRD”)



Employer Executive

Voya Life Companies

2

DBO Agreement1

3

4



Advantages

Cost recovery available to Employer

Not subject to ERISA and“Top-Hat” limitations

Simple plan administration

Disadvantages

No supplemental retirement income provided

No “Golden Handcuffing”

Death benefit paid to Executive’s survivors is taxable income


Executive Bonus Plan

Employer makes premium payments on cash valuelife insurance policy ownedby Executive

Premium Payments treated as taxable income to Executive

Executive uses policy assource of retirement supplemental income

Policy provides Executivea death benefit



Employer Executive1

2

Voya Life Companies

4

3



Advantages

Not subject to ERISA

Not subject to NQDC rules

Supplemental retirement income

Flexibility on timing of payments

Death benefit not taxable as income*

Not subject to Employer’s creditors

Disadvantages

Immediate taxation to Executive

No “golden handcuffs”

No cost recovery available to Employer



Restricted Executive Bonus Arrangement (REBA)

Employer makes taxable premium payments on cash value life insurance policy ownedby Executive

Premium payments treated as taxable income to Executive

Employer and Executive execute restrictive endorsement to policy

Executive uses policy as source of supplemental retirement income

Policy provides Executive adeath benefit


Employer Executive1

2

Voya Life Companies

5

4

Restrictive Endorsement 3



Advantages

Not subject to ERISA

Not subject to NQDC rules

Supplemental retirement benefits


Flexibility on timing of payments

Death benefit not taxable as income*

Not subject to Employer’s creditors

Disadvantages

Immediate taxation to Executive

No cost recovery available to Employer




The Executive Benefits Wizard can help identify a plan

design that works for you.


Executive Benefits Wizard


Ask for a proposal customized to fit your situation.

Your Voya representative can show how these ideas might work for you.

Reward and retain key executives Executive Benefits Planning ©2014 Voya Services Company. All...

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Transcript of Reward and retain key executives Executive Benefits Planning ©2014 Voya Services Company. All...