Reward the employees you depend on with a deferred compensation plan
Desjardins Insurance’s employee incentive programs can provide business owners with the opportunity to give back to their employees.
For more information, contact your Desjardins Agent. They’ll be able to help you find the right employee rewards program for your business.
The split-dollar plan
The split-dollar plan is one of the incentive programs whereby the employer and the employee share the premium payments, or the employer pays the entire premium to buy insurance on the employee's life.
Usually it is guaranteed that, whether the employee lives or dies, the employer may get back their entire portion of the premium payments. If the employee resigns or retires, he must pay back the premiums paid by the employer.
At the employee's death, the beneficiary must pay back the premiums paid by the employer.
Plus, the plan is flexible. The premium may be level for the employee, employer or both.
For the employer, the plan may provide:
- An incentive for the employee to stay with the employer.
- A way to reward certain key employees.
- A source of liquidity for the business through the coverage’s cash values, if the employer is the policyholder.
For the employee, the plan can provide:
- Future insurability for life insurance.
The executive bonus plan
This plan provides a way for an employer to help a key employee meet personal life insurance needs. The employer pays the premium on a life insurance policy owned by the key employee.
An executive bonus life insurance is essentially personal insurance paid for with salary bonus dollars. The premium payment (bonus) is treated as additional taxable compensation to the employee and thus is tax deductible for the business.
The employer may pay an additional income tax-deductible bonus to offset the increased tax liability to the employee. The "premium bonus" plus the "tax bonus" can result in low, or no personal expense for the key employee's own life insurance.
Although the business pays the premium directly or indirectly through a salary bonus, the employee purchases, owns and controls the policy.
For the employer, the plan may:
- Help retain key employees.
- Allow the employer to reward certain key employees.
For the employee, the plan may provide:
- Needed personal life insurance.
- Future insurability.
Deferred compensation plan
The deferred compensation plan is a contractual arrangement whereby a key employee, usually in a high-income tax bracket, will receive a guaranteed number of fixed payments, upon retirement, in place of current salary increases or cash bonuses.
For the employer, the plan may:
- Help retain a key employee.
- Attract a top employee.
- Provide a means to reward specific employees.
For the employee, the plan may:
- Allow them to remain in a lower income tax bracket.
- Provide supplementary funds upon retirement.
- Provide their family with financial support in the event of death.
In the deferred compensation contract, prepared by a lawyer, the employer may agree to:
- Pay the employee a specified salary over a specific number of years upon retirement.
- Continue payments to the employee's beneficiary if the retired employee dies before receiving the full number of payments.
- Pay a death benefit to the employee's beneficiary in the event of death prior to retirement.
The employee usually agrees to:
- Remain with the employer until retirement.
- Refrain from competing with the employer after retirement.
Cash value life insurance provides a means to provide the cash needed for a deferred compensation plan. The policy's cash value can provide needed funding for required payments when the employee retires, and the death benefit can be used if payments are to the employee's beneficiary.
Neither Desjardins Insurance nor its agents provide tax or legal advice. Please consult your tax, legal or investment advisor regarding your specific circumstances.
Life insurance products are manufactured and issued by Desjardins Financial Security Life Assurance Company.