Executive Bonus Plans
Customization
Executive bonus plans can be tailored to meet the specific needs of individual
executives. This customization allows the business to provide benefits that align with each executives
financial goals and circumstances.
Retention Incentive
Executive bonus plans can serve as a powerful retention tool, encouraging key
executives to remain with the company due to the promise of valuable future benefits.
Immediate Gratification
Unlike traditional retirement plans, executive bonus plans provide benefits
in the form of life insurance or annuity policies with cash values. This offers executives the immediate
benefit of a life insurance policys death benefit protection or the potential growth of a cash value
component.
Flexibility in Funding
Employers have the flexibility to determine the amount and frequency of bonus
payments, allowing them to adjust contributions based on the company's financial performance and the
executives performance.
No Discrimination Testing
Traditional employer-sponsored retirement plans are subject to
nondiscrimination testing, which may limit the contributions of highly compensated employees based
on the participation of non-highly compensated employees. Executive bonus plans are exempt from
these testing requirements, potentially allowing executives to receive larger benefits.
Minimal Administrative Burden
Compared to traditional retirement plans, executive bonus plans are
often easier to implement and administer. There are typically fewer administrative requirements and
compliance issues.
Tax Advantages for the Business
Employer contributions to executive bonus plans are tax-deductible
for the business, providing potential tax benefits while offering attractive benefits to key executives.
Enhanced Retirement Benefits
While executive bonus plans are not structured as traditional
retirement plans, they can complement existing retirement benefits by providing executives with an
additional source of retirement income through the cash value accumulation in the policies.
Tax-Deferred Growth
The cash value component of life insurance or annuity policies in executive
bonus plans grows on a tax-deferred basis, potentially allowing for greater accumulation over time.