Executive Benefits Planning Reward and retain key executives
Executive Benefits Planning Reward and retain key executives © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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 Relia. Star Life Insurance Company, Relia. Star Life Insurance Company of New York (Woodbury, NY) and Security Life of Denver Insurance Company. Within the state of New York, only Relia. Star Life Insurance Company of New York is admitted, and its products issued. All companies are members of the Voya® family of companies. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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 © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Executive benefits objectives § Executives want to: – Reduce tax burden and defer taxation of income until the income is actually needed § Employers want to: – Provide executives with incentives to remain with the company © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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 © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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 © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Customize NQDC plans Select Plan Design Based on Mutually Desired Features © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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) © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation § Current Tax Deduction © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation § Current Tax Deduction § Supplemental Retirement Income © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation § Current Tax Deduction § Supplemental Retirement Income § Protection from Employer’s Creditors © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation § Current Tax Deduction § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Factors to consider § Deferral of Income Taxation § Current Tax Deduction § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Income Tax-Free Death Benefits § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Income Tax-Free Death Benefits § Supplemental Retirement Income § Protection from Employer’s Creditors § Cost Recovery § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Income Tax-Free Death Benefits § Supplemental Retirement Income § Protection from Employer’s Creditors § Cost Recovery § ERISA or “Top Hat” Limitations § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Income Tax-Free Death Benefits § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 § Cost Recovery § ERISA or “Top Hat” Limitations § Ease of Administration *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 § Deferral of Income Taxation § Flexibility § Current Tax Deduction § Income Tax-Free Death Benefits § Supplemental Retirement Income § Protection from Employer’s Creditors § “Golden Handcuffs” § Income Tax-Free Retirement Distributions* © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 § Cost Recovery § ERISA or “Top Hat” Limitations § 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 § 409 A © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
NQDC & SERP Arrangements 1 NQDC or SERP Agreement Employer 2 3 5 4 Voya Life Companies © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 Executive
NQDC & SERP Arrangements Advantages Disadvantages § Tax deferral for Executive § Provides source of supplemental retirement income § “Golden Handcuffs” § Cost recovery available to Employer § Subject to § 409 A rules * 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. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 § Retirement benefits subject to income taxes § Funding asset is subject to claims of Employer’s creditors § Timing of payments must be “fixed” when plan is adopted; no flexibility § Death benefit paid to Executive’s survivors subject to income tax* § Subject to ERISA “Top Hat” limitations
Split Dollar Loan Arrangements § 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 © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Split Dollar Loan Arrangements Employer 1 Split Dollar Agreement Executive 2 4 3 Voya Life Companies © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Split Dollar Loan Arrangements Advantages Disadvantages § 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 § Imputed Interest taxed as income to Executive § Limited cost recovery available to Employer © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 *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. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Endorsement Split Dollar Plans 1 Employer 2 Split Dollar Agreement Executive 2 3 3 Voya Life Companies © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 IRS
Endorsement Split Dollar Plans Advantages Disadvantages § Cost recovery available to Employer § No supplemental retirement income provided § Avoids ERISA and “Top-Hat” limitations § No “Golden Handcuffing § Simple plan administration § Death benefit received by Executive’s survivors income tax-free* * Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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”) © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Survivor Income DBO Plans 1 Employer DBO Agreement 4 2 3 Voya Life Companies © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 Executive
Survivor Income DBO Plans Advantages Disadvantages § Cost recovery available to Employer § No supplemental retirement income provided § Not subject to ERISA and “Top-Hat” limitations § No “Golden Handcuffing” § Simple plan administration © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 § Death benefit paid to Executive’s survivors is taxable income
Executive Bonus Plan § Employer makes premium payments on cash value life insurance policy owned by Executive § Premium Payments treated as taxable income to Executive § Executive uses policy as source of retirement supplemental income § Policy provides Executive a death benefit © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Executive Bonus Plan Employer 1 Executive 2 4 3 Voya Life Companies © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Executive Bonus Plan Advantages Disadvantages § Not subject to ERISA § Immediate taxation to Executive § Not subject to NQDC rules § No “golden handcuffs” § Supplemental retirement income § No cost recovery available to Employer § Flexibility on timing of payments § Death benefit not taxable as income* § Not subject to Employer’s creditors * Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Restricted Executive Bonus Arrangement (REBA) § Employer makes taxable premium payments on cash value life insurance policy owned by 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 a death benefit © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Restricted Executive Bonus Arrangement (REBA) 1 Employer Executive 2 5 4 Restrictive Endorsement © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318 3 Voya Life Companies
Restricted Executive Bonus Arrangement (REBA) Advantages Disadvantages § Not subject to ERISA § Immediate taxation to Executive § Not subject to NQDC rules § No cost recovery available to Employer § Supplemental retirement benefits § “Golden Handcuffs” § Flexibility on timing of payments § Death benefit not taxable as income* § Not subject to Employer’s creditors * Proceeds from an insurance policy are generally income tax free, and if properly structured, may also be free from estate tax. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
The Executive Benefits Wizard can help identify a plan design that works for you. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Executive Benefits Wizard © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
Your Voya representative can show these ideas might work for you. Ask for a proposal customized to fit your situation. © 2016 Voya Services Company. All rights reserved. CN 0205 -21856 -0318
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