Loan Split Dollar
Principal® Loan Split Dollar is a plan that allows employers to reward key employees by helping them meet their financial security goals, while also providing survivor benefits for their families. It also offers options for recovering employer costs for this benefit.
This content is designed for use by financial professionals. Consumers may learn more about products and services on principal.com.
- Employees and owners of C corporations
- Employees of pass-through entities (S corporations, LLCs, etc.)
- Employees of tax-exempt organizations
- Companies with employees interested in supplementing income for retirement and providing for family in the event of death
Executive officers of publicly traded companies are not eligible to participate in this plan due to the Sarbanes Oxley Act of 2002.
Benefits and considerations for the employer
- Increase morale. It’s an effective way to recruit, reward, retain and retire key employees.
- Be selective. Plan participation can be made on a selective basis; no need to provide the same benefit to all participants.
- Enjoy flexibility. Plan can be designed to meet your specific goals.
- Secure the loan. The collateral assignment on the policy secures the company’s interest in the loan repayment.
- Receive a tax deduction. If you choose, you may use bonuses, which are tax deductible, to pay the key employees’ income tax on the loan interest. If the loan is forgiven at plan termination, an additional deduction may be available.
- Avoid payroll taxes. Premium payments (loan amounts) do not incur payroll taxes.
- Recover costs. If desired, you may recover your investment in the plan upon plan termination.
Benefits and considerations for the key employee
- Provide for the future. Benefits from the plan can help supplement retirement income on a tax-advantaged basis, as well as provide survivor benefits at death.
- Save on protection. Provides life insurance protection at a cost to the key employee that’s significantly less than the full policy premium.
- Receive multiple benefits. In addition to supplemental income, the plan can also provide access to funds to address unplanned events – such as disability, chronic illness and other financial needs.
- Tailor investment strategy. Depending on the life insurance policy used, each participant can tailor an investment strategy to meet changing needs and objectives.
- Pay taxes. During the accumulation phase, income tax is due only on the imputed loan interest. During the distribution phase, any forgiven loan amounts may be funded through employer bonuses. These bonuses may be increased to offset the key employee’s taxable income.
Before the Sale
Best Practices with Loan Split Dollar (BB12593)
This guide provides several key features and best practices for consideration when implementing a loan split dollar plan.
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Loan Split Dollar overview flyer (BB12228)
To be used with employers to explain how the program works and why it could be advantageous for them and their employees.
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During the Sale
Loan Split Dollar sample proposal (BB12185) • Request for Proposal (BB12218) • Sample Financial Model (BB12490)
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 and illustration.
View Sample Proposal (PDF) • View Request for Proposal (DOC) • View Sample Financial Model (PDF)
After the Sale
Loan Split Dollar participant overview flyer (BB12252)
Demonstrate to participants the benefits of the plan and how it works.
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BMA Services flyer (BB9441)
Outlines the added benefits employers and plan participants get from our administrative services through Business Market Administration (BMA).
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Sample Loan Split Dollar Agreement (BB12277)
A template to help clients' attorneys draft a demand loan agreement with resolution and promissory note.
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Sample Tax-Exempt Loan Split Dollar Agreement (BB12278)
A template to help clients' attorneys draft a demand loan agreement with resolution and promissory note.
View (DOC)
Additional documents are available from our Business Market Administration team for setting up a plan.
Loan Split Dollar Case Study (BB12584)
See how a loan split dollar plan helps a business retain key employees.
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Advanced Markets Information
Technical material for applied knowledge on a specific topic.
View Advanced Markets Information
Business Case Submission Checklist (DD849R)
Form that must be used when submitting Life applications to BMA to fund business solutions.
View (PDF)
Important Information
Insurance products issued by Principal National Life Insurance Company (except in NY), Principal Life Insurance Company®, and the companies available through the Preferred Product Network, Inc. Plan administrative services offered by Principal Life. Securities offered through Principal Securities, Inc., member SIPC, and/or independent broker/dealers. Referenced companies are members of the Principal Financial Group®, Des Moines, IA 50392. For financial professional use only. Not for public distribution.
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