For Producer or Broker/Dealer Use Only. Not for Public Distribution. Help your business owner...

For Producer or Broker/Dealer Use Only. Not for Public Distribution.

Help your business owner clients Recruit, Reward and Retain their best employees

Executive Bonus


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.


Identify Potential Clients & Concerns



• Age: 25-60

• Income: $100,000+ (Typically)

• Successful owner of a small business • Would like to help

supplement key employee’s retirement income and provide death benefit protection

• They may be their own key employee

• Looking for a planthat is easy to administer

Do You Know This Client?

• Wants to improve benefits package for key employees


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.

additional benefits

control

tax deduction


• 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.

Issues Facing These Clients


The Executive Bonus Plan



What is an Executive Bonus Plan?Executive Bonus Plans are simple to administer non-qualified 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.

simple to administer

tax deduction


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)

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.

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.

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 access to policy cash value

Life Insurance Premium

Beneficiary

Executive

Employer

Life Insurance Policy

IRS

1

2

4

Bonus Taxable Income

Life Insurance Death Benefit

3

Tax deduction

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.

Corporate ResolutionHow it Works


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.


Potential Solutions:The Best Possible Staff

• Recruit• Reward• Retain• Retire


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.


Employee determines policy beneficiaries5

Discuss client’s goals for business1Determine if client has employees they would like

to provide additional benefits for2Determine scope of benefits to be provided

• Amount of bonus • Restrictive or Non-restrictive3Business owner enters into agreement with covered employees4

Initiate underwriting process on employee6

Fund life insurance policy8

Implementing an Executive Bonus Plan

Bonus to employees in form of premiums or cash7


Case Studies & Action Plan



Case Study: Darlene’s DesignsDarlene’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


Potential Solution: Executive Bonus

• 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.

Results:Darlene enters into a restrictive executive bonus agreement with Sam


Potential Solution: Executive Bonus

*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.

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.


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


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.


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 Lapse at age 70 Lapse at age 70 $4,090,188 $5,327,470

Policy Year Age Insured Cash Value Death Benefit Cash Value Death Benefit (Assuming 0% (Assuming 0% (Assuming 8% (Assuming 8%

rate of return and rate of return and rate of return and rate of return and guaranteed charges) guaranteed charges) guaranteed charges) guaranteed charges)

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%.

Potential Cash Value and Death Benefit Amounts

How the Policy Can Build Cash Value…(Steve)


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 Lapse at age 75 Lapse at age 75 $4,491,896 $6,630,398

Policy Year Age Insured Cash Value Death Benefit Cash Value Death Benefit (Assuming 0% (Assuming 0% (Assuming 8% (Assuming 8%

rate of return and rate of return and rate of return and rate of return and guaranteed charges) guaranteed charges) guaranteed charges) guaranteed charges)

Hypothetical Example. Actual results will vary. This example uses MetLife's Equity Advantage Variable Universal Life product. Female, age 40, Standard non-smoker. Policy premium of $50,000 for 20 years. Cash Value Accumulation Test.

Potential Cash Value and Death Benefit Amounts

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%.

How the Policy Builds Cash Value…(Diane)


Benefits to employerDecide whom the plan coversDetermine the amount of the benefitRestrict access to policy cash values for a period of timeObtain current business tax deductionRecruit, reward and retain best employees

Benefits to employeesProvide life insurance death benefit for executives’ beneficiariesProvide potential source of supplemental

retirement income

Benefits to Your Clients


Benefits to You

Deepens client relationshipsMay free up additional assets for the

business ownerCreates potential for multiple salesPotential for valuable new clients


Action plan

Have agreement drafted and signed by all parties5

Discuss strategic partnership1Identify and qualify clients2

Schedule time for client meetings and discuss approach 3Define client goals4

Initiate underwriting process on insured6

Employer pays bonus7


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

BDVL23045 L1212295913[1214] © 2013 METLIFE INC. PEANUTS © 2013 Peanuts Worldwide

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 issued by:MetLife Investors USA Insurance Company5 Park Plaza, Suite 1900Irvine, CA 92614

And in NY only by:Metropolitan Life Insurance CompanyFirst MetLife Investors Insurance Company 200 Park AvenueNew York, NY 10166metlife.com

For Producer or Broker/Dealer Use Only. Not for Public Distribution. Help your business owner...

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Transcript of For Producer or Broker/Dealer Use Only. Not for Public Distribution. Help your business owner...