What is a 162 Executive Bonus Plan?
An executive bonus plan is a way for companies or business owners to provide additional benefits to key employees or executives. The benefits usually include life insurance policy death benefits as well as cash value accumulations that can be used as a supplement to retirement income. An executive benefit plan can be a valuable tool to attract and retain key executives. Some Advantages of Executive Bonus Plans An executive bonus plan is simple to implement and easy to administer. The business can selectively choose the key employees they wish to reward. The bonus payments may be considered a fully deductible expense to the company. The key employee is able to name the beneficiary of the entire death benefit of the life insurance policy. In many cases, unless there is a “restricted or controlled executive bonus”, the key executive will have immediate access to policy cash value and may access that cash value without income tax through policy loans and withdrawals. Executive bonus plans are not subject to “qualified plan limits”.
Disadvantages of Executive Bonuses The company is unable to fully recover its costs from the policy’s death benefit since the key executive names the policy beneficiary. Executive bonus plans offer the company very little control of the policy.