Principal Split Dollar PlusSM
How it Works
Employer Advantages
- An efficient way to help the employee pay for a key benefit
- Flexible plan design, giving you the option to provide tax-deductible bonuses
- Easy to implement and administer
- Exempt from annual reporting requirements
- No administrative services fees
Employee Advantages
- Overcomes qualified plan limitations on the amount highly compensated employees can save for retirement
- Provides enhanced retirement and survivor benefits with minimum cash outlay
- Employee owns the life insurance policy, subject to an assignment for loan
- Employer may chose to provide bonuses to offset some or all the tax costs on the amount saved - making this a tax-efficient way to save
Employer Considerations
- The insurance policy is not a corporate asset. (However, the collateral assignment offers the employer the ability to reach policy values if a cash emergency arises.)
- Amounts loaned (premium payouts) are not tax deductible.
- Each premium payment and bonus (if provided) reduces annual cash flow.
- If the interest-free loan approach is used, annual fluctuation in interest rates means interest tax-cost bonuses are unpredictable and may increase.
- Publicly owned companies cannot issue loans to employees.
Employee Considerations
- Additional income tax liability if employer chooses not to provide a bonus to cover income taxes due on the loan.
- The collateral assignment (amount of loaned premiums) must be repaid to the employer upon termination of the arrangement (unless the employer waives its right to be repaid) or upon death. The collateral assignment also exposes policy values to the employer's general creditors.
- If the interest-free loan approach is used, the annual interest cost of the arrangement to the employee will vary from year to year as the interest rate used (the federal Blended Annual Rate as published each July by the IRS) is adjusted annually.
- The employer may require repayment of the loan at any time if a demand loan is used.
- Retaining ownership of the policy for retirement income will cause inclusion of the policy death proceeds in the insured's gross estate for estate tax purposes.
- The employee must provide evidence of insurability to qualify for the life insurance policy. The policy includes mortality costs of insurance and surrender charges may apply.
Approval #384352006
