Leveraged Compensation System | Features

Features of the InsMark Leveraged Compensation System

Important Note: All aspects of Leveraged Compensation System must be reviewed and approved by a client’s legal and tax counsel before the arrangement is utilized for any purpose.

Leveraged Executive Bonus

With this strategy, the employer bonuses a key executive an amount equal to the premium on a personally-owned policy and, using loan-based split dollar principles, loans the executive the funds to pay the tax on the bonus. Loan interest can be illustrated as paid by the executive or offset by a further bonus from the employer.

This approach prevents the employer from having to use a gross-up bonus (also known as a double bonus) in order to provide the executive with little or no out-of-pocket cost — which is the typical approach with an executive bonus plan.

This arrangement also provides the employer the future opportunity to recover some/all of its plan costs through repayment of the loan receivable due from the executive (usually accomplished by a tax free policy withdrawal and/or loan).

The overall effect is a reduced impact on the employer’s charge to earnings compared to a classic executive bonus plan. This is accomplished while still retaining a significant income tax deduction via the bonus as opposed to a plan fully funded via loan-based split dollar which provides the employer with no income tax deduction at all.

Specimen documents are in Version 19.0 (and higher) of InsMark’s Documents On A Disk® and Documents On The Net™ in the Executive Bonus Plans section. (Use the specimen document entitled “Leveraged Executive Bonus (With Loan Regime Collateral Assignment Split Dollar to Pay Tax on Bonus)”.)

Leveraged Deferred Compensation

This strategy provides a participating executive with a way to trade a portion of taxable compensation now for tax free policy loans in the future using a cash value life insurance policy funded with loans from the employer — the source of which are the executive’s compensation adjustment.

Specimen documents are in Version 19.0 (and higher) of Documents On A Disk® and Documents On The Net™ in the Employer-Sponsored Split Dollar Plans section. (Use the specimen documents for Leveraged Deferred Compensation.)

Leveraged 401(k) Look-A-Like

This is similar to Leveraged Deferred Compensation but is presented in its own module for marketing purposes. For a look at an impressive variation called Deductible Roth 401(k) Look-A-Like, InsMark's Advanced Underwritering Registry subscribers may review Marketing Alert #230.

Specimen documents are in Version 19.0 (and higher) of InsMark’s Documents On A Disk® and Documents On The Net™ in the Employer-Sponsored Split Dollar Plans section. (Use the specimen documents for Leveraged Deferred Compensation.)