Reward Them. Keep Them.

Section 162

Executive Bonus

An executive bonus arrangement is the simplest of these structures and often the first one an owner considers. The business pays a bonus. The employee applies for and owns a life insurance policy. The arrangement can reward selected employees, provide life insurance protection, and build policy value the employee can use for longer-term needs.

It can be offered to one person. It does not have to be offered to everyone. That selectivity is the point, and it is what a qualified plan cannot do.

REBA

Restrictive Executive Bonus

A plain bonus arrangement has one weakness as a retention tool: the executive can accept it and resign the following week with the policy intact. A restrictive arrangement closes that gap by combining three things. The bonus itself, a restrictive endorsement filed with the insurance company that limits the executive's access to policy cash values for a set period without the employer's consent, and an employment agreement under which the executive agrees to return some portion of the bonuses if they leave early.

The executive still owns the policy. What changes is when they can reach the money inside it.

Economic Benefit Regime

Endorsement Split Dollar

A split dollar plan is an arrangement between two or more parties, usually an employer and an employee, to purchase and share the costs and the benefits of a life insurance policy. Under an endorsement design the company owns the policy and endorses a portion of the death benefit to the employee's beneficiary. The value of the insurance the employee receives is taxable to the employee, and the employer reports it.

At the employee's death or retirement the company recovers its interest, commonly an amount equal to the premiums it paid. The company is not a party the carrier enforces the agreement for. That agreement is between the employer and the employee, and it is drafted by counsel.

Loan Regime

Loan Regime Split Dollar

Under a loan design the company advances the premium to the executive as a loan rather than owning the policy itself. The executive owns the policy, subject to the loan and a collateral assignment back to the company. North American markets its version of this concept as Executive Advantage, positioned as a way to help owners recruit, retain, and reward select employees.

The two split dollar designs are taxed under different rules depending on who owns the policy, which is why the ownership decision is made with your CPA before the application is written, not after.

Employer Controlled

Retention and Succession Designs

Some arrangements are built to stay under the company's control from beginning to end, so the business can protect itself, retain key talent, and support a succession plan out of the same structure. North American offers this family under the name Executive Retention+.

These designs suit an owner who wants the retention benefit without handing over the asset, and who expects the policy to do a second job later, whether that is funding a transition or backing a buy-sell obligation.

Nonqualified

Deferred Compensation

A nonqualified deferred compensation plan lets an executive defer part of their pay to a future date, usually retirement. Higher earners hit the contribution ceilings on a qualified plan long before those plans replace enough of their income, and deferred compensation is one way to close that distance.

When the plan is informally funded with life insurance, the company owns the policy and the executive holds a contractual promise rather than an interest in the asset. Split dollar arrangements classified as welfare benefit plans carry an additional requirement that the participant belong to a select group of management, so eligibility is defined carefully at the outset.