Deferred Comp - Select Reward
Principal® Deferred Comp - Select Reward is a plan designed to recruit, reward and retain key employees. It provides a lump-sum benefit at the end of a pre-determined service period, encouraging key employees to stay for the long term.
This content is designed for use by financial professionals. Consumers may learn more about products and services on principal.com.
- Any business entity (S corporation, C corporation, partnership, LLC, etc.)
- Employers who want to tie key employees to the business
- Employers who want to reward key employees
Benefits and considerations for the employer
- Encourage loyalty – Employer provides incentive for the key employee to remain loyal to the organization for a pre-determined service period.
- Receive a tax deduction – In the year the bonus is paid or the life policy is transferred to the key employee, a tax deduction is received for the entire bonus.
- Reduce cash flow – Premiums are paid with company after-tax dollars, so each premium payment reduces annual cash flow.
- Recover the premium cost – If the key employee dies before the end of the service period, the life policy’s tax-free death benefit* may be used to recover the cost of the premiums paid.
Benefits and considerations for the key employee
- Pay minimal cost – The key employee will pay tax on the value of the life insurance death benefit that’s endorsed to them during the service period. This cost is much less than if the key employee was to personally purchase that amount of life insurance.
- Help with taxes – In the year the bonus is received, the policy’s cash value may be used to pay the income tax due. It’s not possible to receive annual payments or defer receipt of the bonus.
- Use for personal needs – If ownership of the life policy is transferred to the key employee, its cash value and death benefit may be used for personal financial needs.
- Must qualify – The key employee must be healthy enough to qualify for the life insurance policy.
* If the requirements of IRC Section 101(j) aren't met, then death proceeds from employer-owned life insurance contracts may be taxable as ordinary income in excess of the cost basis.
Key materials listed below.
Before the Sale
Employer Summary (BB9682)
During the Sale
Sample Proposal (BB9799) | Request for Proposal (DD2606)
View this sample of a complete customized Proposal that includes details on plan design, benefits, considerations and sample agreements.
View Sample Proposal (PDF) • View Request for Proposal (DOC)
Financial Models: Shows a sample of the financial model and illustration.
- Sample Cost & Benefit Analysis (using Principal VUL Income III) (BB9799VUL)
After the Sale
Employee Summary (BB12061C)
Sample Agreements - Contains some of the pertinent issues to assist the client's attorneys with drafting the actual agreement.
- Sample Principal Select Reward Plan Bonus Agreement (BB10999)
- Sample Endorsement Split Dollar Agreement (BB10998)
BMA Services Flyer (BB9441)
Outlines the added benefits employers and plan participants get from our administrative services through Business Market Administration (BMA).