Executive Bonus
Help your business owner
clients Recruit, Reward and
Retain their best employees
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Agenda
• Identify Potential Clients and Their
Concerns
• What is Executive Bonus and How Does
it Work?
• Case Studies and Action Plan
• Consider MetLife for Business Owner
Clients
Please note: This document is designed to provide introductory information on the subject
matter. MetLife does not provide tax and legal advice. Clients should consult their attorney
and /or tax advisor before making financial investment or planning decisions.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Identify Potential
Clients & Concerns
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Do You Know This Client?
• Successful
owner of a
small business
• Would like to help
supplement key
employee’s
retirement income
and provide death
benefit protection
• Age: 25-60
• Income: $100,000+
(Typically)
• Looking for a plan
that is easy to
administer
• Wants to
improve benefits
package for
key employees
• They may be their
own key employee
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
The Concern
• I want to provide additional benefits
only for the employees I choose.
• I want to control the amount (and
conditions upon the receipt) of these
benefits.
• I still want a current tax deduction for
my business.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Issues Facing These Clients
• Qualified Retirement Plans (QRPs) discriminate against highly
•
•
•
•
compensated employees, limiting the percentage of income they
may be able to contribute.
QRPs force inclusion of rank and file employees.
Success of business depends on one or more key employees.
Need to provide better benefits than competition to recruit, retain
and reward executives.
Want to effect some control over executive with these benefits.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
The
Executive Bonus Plan
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
What is an Executive Bonus Plan?
Executive Bonus Plans are
simple to administer nonqualified plans. They are an
innovative way to help
Recruit, Reward and Retain
key employees – while still
generating a current year
business tax deduction for
the plan contributions.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
How it Works
IRS
Corporate
Resolution
Employer
Tax deduction
Bonus Taxable Income
1
The employer selects the key executive(s) who will
participate in the plan and enters into an agreement to
purchase a life insurance policy.
Executive
Assuming no restrictive
endorsement, the executive
can access the policy's cash
value through withdrawals
and loans. (Loans and
withdrawals will decrease
the cash value and death
benefit)
Life Insurance
Premium
3
Executive access to
policy cash value
Life Insurance
Policy
Life Insurance Death Benefit
Tax-favored distributions assume that the
life insurance policy is properly structured,
is not a Modified Endowment Contract
(MEC) and distributions are made up to the
cost basis and policy loans thereafter.
Should the policy lapse or be surrendered
prior to the death of the insured, there may
be tax consequences.
2
The employer can directly pay the life insurance premiums
to the insurance company or indirectly pay premiums via
the bonus to the executive. The executive owns the policy
and names a beneficiary of his/her choice.
4
In the event of the executive’s death, his/her designated
beneficiary will receive the life insurance policy’s death
benefit. The death benefit (less any outstanding loan balance)
generally is paid to his/her beneficiaries income tax free.
Beneficiary
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solutions:
Allows the Employer to Discriminate
• Employer has complete discretion over
who is in the plan
• Employer can fund the plan generously,
up to reasonable compensation
guidelines*
• Employer can control when
and how bonuses are paid
* Overall compensation must fall within reasonable compensation limits as determined by the Internal Revenue Service.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solutions:
The Best Possible Staff
• Recruit
• Reward
• Retain
• Retire
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solutions:
Tax Deductions vs. Control
• Golden handcuffs
• Restrictive bonus design
With respect to a § 162 Executive Bonus plan, the employer
should consult with and rely on independent legal and tax
advisors regarding whether any executive bonus plan may be
considered to be a welfare benefit plan under ERISA and if so,
what requirements must be met.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Implementing an Executive Bonus Plan
1
2
3
4
5
6
7
8
Discuss client’s goals for business
Determine if client has employees they would like
to provide additional benefits for
Determine scope of benefits to be provided
• Amount of bonus • Restrictive or Non-restrictive
Business owner enters into agreement with covered employees
Employee determines policy beneficiaries
Initiate underwriting process on employee
Bonus to employees in form of premiums or cash
Fund life insurance policy
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Case Studies & Action Plan
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Case Study: Darlene’s Designs
Darlene’s goals:
1. Reward Sam, her website designer,
with additional life insurance for his
family in the amount of 10x his pay
2. Help provide Sam with an alternate
source of retirement income, if
needed
3. Keep Sam from considering a job
with one of her competitors
4. Not be forced to provide equal
benefits to her other employees
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solution: Executive Bonus
Results:
Darlene enters into a restrictive executive bonus agreement with Sam
• Sam purchases a $1 million Universal
Life insurance policy.
• Darlene's business pays expected
annual premiums of $11,594 for 15
years - this is a taxable bonus to Sam.
• Darlene's business pays ‘double bonus’
of $4,509 to cover Sam's income taxes
due on premium bonus (assumes 28%
tax bracket for Sam).
*This example is for illustrative purposes only. Figures are based on MetLife's Guarantee Advantage Universal Life, male, age 35 with standard
non-smoker health rating. Please see a full product illustration for additional details.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solution: Executive Bonus
Results (cont’d):
• Darlene's business takes income tax
deduction for total bonus of $16,103.
• Sam must have Darlene's permission to
access the policy cash values for 10 years.
• Sam has unrestricted access to policy cash
values after 10 years.
• Upon Sam’s death, his beneficiaries receive
the income tax free death benefit less any
outstanding loans or withdrawals.
*This example is for illustrative purposes only. Figures are based on MetLife's
Guarantee Advantage Universal Life, male, age 35 with standard non-smoker
health rating. Please see a full product illustration for additional details.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Case Study:
Steve’s Seafood Restaurants
Steve’s Goals:
• Make sure that either he or his wife, Diane,
will be able to continue the business
in the event of the other’s death
• Provide a death benefit for their children
• Establish greater retirement savings
for him and Diane, should the
business fail to fully support them
in their retirement years
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Potential Solution:
Executive Bonus
Benefits for Steve and Diane:
• They are not forced to include other
employees in the plan
• 100% of the contributions go to the owners’ plans*
• No complex administration (or associated costs)
• Death benefit to help continue the
business and provide for beneficiaries
• Potential for supplemental income through
tax-advantaged loans and withdrawals**
* If the business is a pass through entity, an Executive Bonus plan may not provide an income tax deduction advantage when the owners
are participants.
**Tax-favored distributions assume that the life insurance policy is properly structured, is not a modified endowment contract (MEC), and
distributions are made up to the cost basis and policy loans thereafter. Loans and withdrawals will decrease the cash value and death
benefit. If the policy has not performed as expected and to avoid a policy lapse, distributions may need to be reduced, stopped and/or
premium payments may need to be resumed. Should the policy lapse or be surrendered prior to the death of the insured, there may be tax
consequences.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
How the Policy Can Build Cash Value…(Steve)
Potential Cash Value and Death Benefit Amounts
Policy Year
Age Insured
Cash Value
Death Benefit
(Assuming 0%
rate of return and
guaranteed charges)
(Assuming 0%
rate of return and
guaranteed charges)
Cash Value
Death Benefit
(Assuming 8%
(Assuming 8%
rate of return and
rate of return and
guaranteed charges) guaranteed charges)
1
43
$37,371
$2,384,602
$40,708
$2,384,602
10
52
$334,075
$2,384,602
$528,921
$2,384,602
20
62
$580,598
$2,384,602
$1,513,218
$3,148,448
30
72
$123,289
$2,384,602
$2,534,205
$4,057,667
40
82
$4,090,188
$5,327,470
Lapse at age 70 Lapse at age 70
Hypothetical Example. Actual results will vary. This example uses MetLife's Equity Advantage Variable Universal Life product. Male, Age 42, Standard non-smoker.
Policy premium of $50,000 for 20 Years. Cash Value Accumulation Test.
Assumptions for both charts: Guaranteed charges = Sales Load 5% for policy face amounts greater than $5,000,000 this charge is reduced to 3.5%.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
How the Policy Builds Cash Value…(Diane)
Potential Cash Value and Death Benefit Amounts
Policy Year
Age Insured
Cash Value
Death Benefit
(Assuming 0%
rate of return and
guaranteed charges)
(Assuming 0%
rate of return and
guaranteed charges)
Cash Value
Death Benefit
(Assuming 8%
(Assuming 8%
rate of return and
rate of return and
guaranteed charges) guaranteed charges)
1
41
$38,315
$2,919,048
$41,691
$2,919,048
10
50
$347,055
$2,919,048
$547,344
$2,919,048
20
60
$608,676
$2,919,048
$1,561,228
$3,869,816
30
70
$247,007
$2,919,048
$2,675,243
$5,015,626
40
80
$4,491,896
$6,630,398
Lapse at age 75 Lapse at age 75
Hypothetical Example. Actual results will vary. This example uses MetLife's Equity Advantage Variable Universal Life product. Female, age 40, Standard nonsmoker. Policy premium of $50,000 for 20 years. Cash Value Accumulation Test.
Assumptions for both charts: Guaranteed charges = Sales Load 5% for policy face amounts greater than $5,000,000 this
charge is reduced to 3.5%.
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Benefits to Your Clients
Benefits to employer
Decide whom the plan covers
Determine the amount of the benefit
Restrict access to policy cash values for a
period of time
Obtain current business tax deduction
Recruit, reward and retain best employees
Benefits to employees
Provide life insurance death benefit for
executives’ beneficiaries
Provide potential source of supplemental
retirement income
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Benefits to You
Deepens client relationships
May free up additional assets for the
business owner
Creates potential for multiple sales
Potential for valuable new clients
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Action plan
1
Discuss strategic partnership
2
Identify and qualify clients
3
Schedule time for client meetings and discuss approach
4
Define client goals
5
Have agreement drafted and signed by all parties
6
Initiate underwriting process on insured
7
Employer pays bonus
For Producer or Broker/Dealer Use Only. Not for Public Distribution.
Pursuant to IRS Circular 230, MetLife is providing you with the following notification: The information contained in this document is not intended to
(and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance products. You should
seek advice based on your particular circumstances from an independent tax advisor.
MetLife, its agents and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general
information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and change. Tax results
and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and
rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.
Like most insurance policies, MetLife's policies contain charges, limitations, exclusions, termination provisions and terms for keeping them in force.
Contact your financial representative for costs and complete details.
Equity Advantage Variable Universal Life is issued by MetLife Investors USA Insurance Company on Policy Form 5E-46-06 and in New York only,
by Metropolitan Life Insurance Company on Policy Form 1E-46-06-NY-1. Variable products are distributed by MetLife Investors Distribution
Company (member FINRA). All are MetLife companies. Guarantee Advantage Universal Life is issued by MetLife Investors USA Insurance
Company on Policy Form 5E-34-07 and in New York only by Metropolitan Life Insurance Company on Policy Form 1E-34-07-NY. All product
guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. January 2013
Life Insurance Products are:
• Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency
• Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value
Life insurance products are issued by:
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And in NY only by:
Metropolitan Life Insurance Company
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New York, NY 10166
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