A 162 Bonus Plan Primer
The COVID-19 pandemic has significantly impacted our daily lives, including a swift and volatile impact on business operations and the financial markets. The challenging economic environment, coupled with little clarity as to when and how overall public health and business conditions will improve has resulted in high levels of uncertainty ― leading many companies to evaluate key aspects of their business and operations, including executive compensation and benefits.
More than ever, having an engaged and committed executive team is essential to ensuring a company’s survival, business continuity, and recovery. A critical component for attracting, engaging, and retaining executive talent is competitive executive compensation and benefits. As you assess your total rewards strategy, consider the strategic advantages of a 162 Bonus Plan.
The name “162 Bonus Plan” refers to the Internal Revenue Code (IRC) Section 162(a)(1). 162 Bonus Plans are a tax efficient and cash efficient way for business owners or companies to provide additional benefits to key employees or executives of their choice. Using employer-funded life insurance policies, a 162 Bonus Plan provides death benefit protection to an executive and enables the executive to accumulate assets on a tax-efficient basis.
Why Would an Employer Establish a 162 Bonus Plan?
There are several objectives employers can achieve by using a 162 Bonus Plan:
One of the advantages of a 162 Bonus Plan is its flexibility. Specifically, an employer can customize:
Some employers want to reward executives in a way that builds loyalty to the company by creating a “golden handcuff” ― adding certain limitations into the 162 Bonus Plan. Referred to as a Restricted Executive Bonus Arrangement (REBA), the limits can be established between the employer and the executive at the time the policy is issued and filed with the insurance company. A typical REBA may include the following restrictions:
Contact a LoVasco team member to learn more about how a 162 Bonus Plan would engage and motivate your key executives to drive your business forward during these challenging times.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.
Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered Broker/Dealer and Investment Advisor, member FINRA/SIPC. LoVasco Consulting Group is independently owned and operated.
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LoVasco Consulting Group and their agents are presently licensed to sell traditional life insurance in Michigan as a resident producer and numerous other states as a nonresident producer. This site is not intended as an offer to sell securities, which may be done only after proper delivery of a prospectus and a client suitability review. Proper state registration is mandatory prior to conducting business in any state. Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a registered broker dealer and Investment Advisor, member FINRA / SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. LoVasco Consulting Group is owned and operated independently from M Holdings Securities, Inc. LoVasco Consulting Group is a member of M Financial Group. Please click here for further details regarding this relationship.