Principal® Bonus is a simple and effective plan designed to help employers recruit, reward, retain and retire key employees. It helps top talent increase their savings for the future, while helping their employer keep them for the long term.
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- Any business entity (S corporation, C corporation, partnership, LLC, etc.)
- Employers who want to reward key employees who contribute most to the organization’s continued success
- Employers looking to provide tax deductible benefits
- Employers who want to help key employees save more for retirement
- Employers with enough ongoing cash flow
- Business owners with a need to protect family assets and prepare for the future
Benefits and considerations for the employer
- Increase morale - It's an effective way to recruit, reward, retain and retire the employees who are most valuable to the business.
- Receive tax-deduction - Business receives a current tax-deduction1 on the bonuses contributed to the plan.
- Communicate easily - Its simple and flexible plan design is easy to communicate and administer.
- Save time - Business owners save time by not having to deal with annual reporting or ERISA requirements.
- Impact cash flow - Bonuses the business pays reduce the company cash flow.
Benefits and considerations for the key employee
- Save more - More can be saved for retirement; above the limits of a qualified plan, such as a 401(k) or 403(b).
- Receive multiple benefits - In addition to retirement income, it provides access to funds to address unexpected events, such as disability, chronic illness and other financial needs.
- Enhance financial security - The employee's family may receive tax-free benefits at the employee's death.
- Owns the policy - The key employee owns the life insurance policy2, but must stay with the organization to be eligible for the bonus.
- Pay potential taxes - An additional tax may be due if the employer's bonus doesn't cover all of the income tax. However, the tax on the bonus may be partially or fully offset with another employer bonus.
1 Due to the flow-through tax treatment of some businesses, such as S corps and LLCs, business owners may want to consider specific plans designed to benefit the owners of these entities.
2 Additional financing options may be available.
Key materials listed below.
Before the Sale
Use the appropriate NQ Supplemental Retirement decision grid (S corp./LLC (BB11383), C corp. (BB11384) or tax-exempt entity (BB11385) with your clients if you have not yet determined the appropriate plan design.
During the Sale
Sample Proposal (BB10078) | Request for Proposal (DD2230)
A customized proposal can be created by the Business and Advanced Solutions Case Design team by using the Request for Proposal below. It will be customized for your client with appropriate cover information, financial model and illustration.
View Sample Proposal (PDF) • View Request for Proposal (DOC)
Financial Models: Shows a sample of the financial model and illustration.
- VUL Financial Model (BB10078DOUBL)
After the Sale
Use this summary with participants to explain the benefits of the plan and how it works. Choose from double bonus, single bonus or simulated deferral, and then customize it based on if the plan design includes a repayment obligation or restrictive agreement.
Sample Agreement (BB10441)
A guide that contains some of the important issues to assist the client's attorneys with drafting the actual agreement.
Request and Agreement to Restrict Owner's Rights Form (BB6217)
Complete to place ownership restrictions on a life insurance policy.