Your small business clients know that their company is only as strong as the employees that work for it. Help them keep their key employees satisfied with an executive bonus plan funded with life insurance. 

How this plan works

An executive bonus plan is offered as a bonus to the employee, which is directly deposited into a life insurance policy. The bonus is considered to be compensation and is deductible to the employer and taxable to the employee.

Diagram of how an executive bonus plan works during the working years; description below

During the working years, the employer provides additional compensation to the key employee by depositing a bonus directly into a Nationwide life insurance policy via premium payments. The premium payments are tax deductible for the employer, while the employee must pay taxes on them.

Diagram of how an executive bonus plan works after the working years; description below

After the working years, Nationwide provides supplemental retirement income to the retired employee and/or provides the life insurance policy’s death benefit to the employee’s beneficiaries when the key employee dies.

A restricted executive bonus arrangement (REBA) is one in which the employee has limited access to the contract value for a specific period of time, and is required to reimburse the employer some or all of the bonus if they leave the employer before this time period is over.

Restrictive endorsement ensures that major changes to the policy cannot be made without the employer’s consent. A vesting schedule enables the employer to recover some or all of the additional compensation if the employee leaves before the vesting schedule is satisfied.

With a simple executive bonus plan, REBA restrictions do not apply.

Potential benefits of an executive bonus plan

  • Bonuses are tax-deductible to the business
  • The employer can choose which employees to reward
  • There are no minimum or maximum contribution requirements
  • The plan is simple, straightforward and easy to implement
  • No third-party administration is needed

Potential benefits of a restricted executive bonus arrangement

In addition to the benefits of an executive bonus plan listed above, these also apply:

  • "Golden handcuffs" are created through a restricted endorsement and vesting schedule
  • A repayment obligation allows the employer to recover some or all of the additional compensation if the employee prematurely leaves the company
  • The restricted endorsement requires employer approval for significant changes to the policy

Resources

Have small-business clients but don’t know which life insurance solution is right for their business? Answer a few questions and get a recommendation from the Nationwide Small Business Solutions Analyzer.

NFW-5809AO
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For more information, contact the Solutions Center at 1-800-321-6064
 NFW-6071AO

As situations change, so will the business's life insurance needs. Care should be taken to ensure these strategies and products are suitable for the business's and the client's long-term goals. Weigh the business's objectives, time horizon and risk tolerance as well as any associated costs before investing. Also, be aware that market volatility can lead to the possibility of the need for additional premium in the policy. Variable life insurance has fees and charges associated with it, which include costs of insurance, underlying fund expenses and administration fees. Investing involves risk, including possible loss of principal. Nationwide and its representatives do not give legal or tax advice. An attorney or tax advisor should be consulted for answers to specific questions.

Variable life insurance has fees and charges associated with it that include costs of insurance that vary with such characteristics of the insured as gender, health and age, underlying fund charges and expenses, and additional charges for riders that customize a policy to fit their individual needs. Variable products are sold by prospectus. You can obtain the product prospectus and underlying fund prospectuses by writing to Nationwide Life Insurance Company, P.O. Box 182021, Columbus, OH 43218-2021. Before you invest, you should read the prospectus carefully and consider investment objectives, risks, charges and expenses. The product prospectus and underlying fund prospectus contain this and other important information.

Loans and withdrawals will reduce the death benefit. Most distributions will be taxed on a first-in/first-out basis, as long as the contract is not a modified endowment contract (MEC) according to Section 7702A of the Internal Revenue Code. Loans from a MEC are generally taxable and subject to a 10% tax penalty if taken before age 59 1/2. If the policy lapses with a loan outstanding, it will be treated as a distribution and some or all of the amount may be taxable.

Guarantees and protections are subject to Nationwide's claims-paying ability. They do not apply to the investment performance or safety of the underlying investment options.

Investment products are not FDIC-insured, may lose value and have no bank guarantee.

NFW-5428AO