 |
 |
Choose an area of interest: |
|
SERP and Split Dollar: A Great Combination
Jan. 17, 2001
(Principal Financial Group)
Split dollar and selective employee retirement plans (SERP) are popular nonqualified employee benefits. Split dollar allows the employer to finance the life insurance premiums, giving the employee's beneficiary an income tax-free death benefit. SERP allows the employer to provide a retirement income.
The employer may provide the benefits of both split dollar and SERP -- funded with the same life insurance policy.
How It Works
- Typically, the endorsement method of split dollar is used (the corporation owns the life insurance contract).
- The split dollar provides a pre-retirement death benefit - the employee's only cost is the current income tax impact of the economic benefit.
- At retirement, the split dollar arrangement is terminated.
- The employer, as the sole owner of the policy, can use the policy values to help pay the SERP retirement income payments.
Advantages
- Funding both benefits with one policy is cost efficient
- The pre-retirement death benefit is income tax free (instead of being a taxable deferred compensation benefit)
- Employer is not directly responsible or involved in providing pre-retirement benefits
- The termination of the split dollar agreement just prior to retirement provides the employer with at least some of the cash flow for retirement benefits
- If done for C corporation owners, the pre-retirement death benefit can be used for business continuation planning (before retirement)
This combination allows key employees and C corporation owners to have the best of both worlds at minimal cost to the employee!
2001, Principal Financial Group. All Rights Reserved.
|
|
 |
Related Stories |
| |
 |
| |
|
|
|
| |
Related Courses |
|
| |
|
|
|
|
|
|
| |
|
|
|
