Deferred Comp - Select Reward (Tax Exempt)
Principal® Deferred Comp - Select Reward (Tax Exempt) is a specific type of 457(f) plan funded with only employer dollars. It provides a lump-sum benefit to select key employees at the end of a pre-determined service period, encouraging key employees to stay for the long term.
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- Any non-governmental tax-exempt organization
- 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.
- Enjoy simplicity – No complex liability tracking or actuarial calculations are needed.
- Reduce cash flow – 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
During the Sale
Sample Employer Proposal (BB10081) | Request for Proposal (DD2606)
Sample of customizable proposal for tax-exempt organizations. Includes details on plan design, benefits and considerations.
View Sample Proposal (PDF) • View Request for Proposal (DOC)
Financial Models: Shows a sample of the financial model and illustration.
- Sample Tax Exempt Cost & Benefit Analysis (using Principal VUL Income III) (BB10081VUL)
After the Sale
Employee Summary (BB12062C)
Use with employees to explain how the program works and the benefits available to them. Customization available based on if the plan has an endorsement split dollar agreement.
View (PDF) • Customize
Sample Agreements - Contains some of the pertinent issues to assist the client's attorneys with drafting the actual agreement
- Sample Select Reward Plan - Tax Exempt Bonus Agreement (BB11009)
- Sample Endorsement Split Dollar - Tax Exempt Agreement (BB11008)
BMA Services Flyer (BB9441)
Outlines the added benefits employers and plan participants get from our administrative services through Business Market Administration (BMA).
Key materials listed below.
Compare Key Employee Benefit Plans for Tax-Exempt Organizations (BB10052)
Use this comparison matrix to help determine which plan design best meets the client’s need.
Business Case Submission Checklist (DD849R)
Form that must be used when submitting Life applications to BMA to fund business solutions.