Key employees play an important role in the success of an organization. Business owners depend on them every day. So, how can you help them keep their employees happy and motivated for the long term? Talk with owners about the value of adding income-protection solutions to their employee-benefits package.
Key employees are highly compensated, so helping protect their income is important. The monthly benefits work "like a paycheck" if they become too sick or hurt to work.
Use the chart below to compare two income-protection solutions - Salary Continuation and Executive Bonus from Principal®.
|Description||Allows employers to provide individual DI insurance to specified categories of employees under a formal program. Also known as a qualified sick-pay program.||Allows employers to offer bonus cash to employees for the purchase of the individual DI insurance policy.|
|Employees Covered||Employers can choose which classes of employees to cover. As employees meet the criteria established for the class, they must be added.||Employers can select which employees to cover.|
|Premiums (employer)||Deductible to employers as a fringe benefit expense (IRC Section 162(a))||Deductible to the employer as regular compensation (IRC Section 162(a))|
|Premiums (employees)||Not taxable to employees (IRC Section 106)||Taxable as income to employees (IRC Section 61(a))|
|Benefits||Benefits are taxable to employees (IRC Section 105 (a))||Benefits are received income tax-free (IRC Section 104(a)(3))|
|Taxes at claim time||Employers pay FICA tax for the first six months of disability, (IRC Section 3121(a)(4))||There is no tax liability to employers at claim time.|
To be eligible for tax advantages, a formal plan must be established before a disability begins:
|No paperwork or documentation is required.|
Key materials listed below.
Highlights of Business Organizations (JJ1195)
This flyer outlines the various aspects of sole proprietorships, partnerships, limited liability companies, C corporations and S corporations.
DI salary continuation and executive bonus presentation (DI8512)
This presentation educates producers on the income protection solutions for key employees and the tax advantages they provide. It also highlights DI Retirement Security.
Key materials listed below.
Salary Continuation Sample Agreement (BB11005)
This consumer sample Disability Income Salary Continuation Plan Resolution and Agreement is a useful guide for clients and advisors.
Executive Bonus Sample Agreement (DI) (BB11006)
Sample Agreement helps clients/advisors set up an Executive Bonus Plan for Disability Insurance.
This information is provided with the understanding that Principal® is not rendering legal, accounting or tax advice. Consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
DI9960 – 11/2018