For Profit Organizations
Privately held businesses generally can credit their success to a small group of key employees who have unique skills and abilities that are critical to maintaining the viability and continued success of the company.
Business owners may wish to offer a selective benefit to this key group of employees that not only rewards them for their work, but also motivates them to remain with the company. Traditionally, employers have offered qualified retirement plans to their employees as part of their benefits package, but these plans must be offered to every eligible employee and can carry additional costs to administrate.
With a Restricted Executive Bonus Arrangement (REBA), employers can offer an exclusive fringe benefit to key employees that is tax deductible to the employer, has a flexible contribution amount, and requires no third-party administration or IRS Approval. In a standard arrangement, each year the employer simply bonuses the employee the agreed upon amount and it is placed into the bonus agreement, with no burdensome administration. The result is an attractive benefit that can provide tax-free income to the employee upon retirement, and a deductible benefit to the employer that motivates employees.
Top Reasons for Restricted Executive Bonus
Selective – Restricted Executive Bonus is a selective benefit that can be offered exclusively to key executives and employees.
Tax-Deductible – Bonuses paid to employees are tax-deductible to the employer.
Retainment – Rewarding employees with a vested fringe benefit motivates them to remain with the business
Administration – Restricted Executive Bonus requires no third party administration, IRS approval, or complicated tax reporting.
Who is it for?
Restricted Executive Bonus Agreements are for any for-profit business with a select group of executives or employees whose skillset are vital to maintaining success of the business.
Non-Profit Organizations
Non-profit organizations with employees who earn more than $1,000,000 annually are required to pay an excise tax of 21% on any compensation above the $1,000,000 threshold per IRC 4960. For these high-earning employees, a loan based split-dollar program is an effective way to provide an additional benefit that provides both the employee and employer with several attractive benefits. As a non-profit organization, it is increasingly difficult to compete in the effort to recruit and retain top talent in today’s job market.
However, through a loan-based split dollar arrangement, non-profits can offer a more attractive and complete compensation package than what is traditionally offered. A loan based split-dollar arrangement allows for non-profits to provide an exclusive and flexible benefit that allows a employee to participate in tax-free growth and tax-free retirement income. Unlike traditional benefit programs, loan based split-dollar is not considered a form of equity or compensation on behalf of the organization or the employee.
In a loan based split-dollar arrangement, a portion of the employees’ compensation over $1,000,000 is loaned to them to by the organization as an alternative to deferred compensation. Loaning instead of paying this amount directly to the employee mitigates the 21% excise tax to the organization and immediate income tax due to the employee. For the length of the arrangement, the the organization continues to loan the employee the agreed upon amount, and is placed in to the arrangement where it grows on a tax-deferred basis. When the employee retires, they are also able to receive tax-free income.
Top Reasons for Split-Dollar
Selective –Loan Based Split-Dollar is a selective benefit that can be offered exclusively to key executives and employees.
Compete – Loan Based Split-Dollar allows non-profits to offer a more attractive and complete compensation package than what traditionally can be offered.
Recruit, Reward, Retain – Loan Based Split-Dollar offers an innovative way to recruit top talent to organizations and motivates current employees to remain with the organization.
Who is it for?
Loan Based Split-Dollar is for any non-profit organization with employees earning in excess of $1,000,000 annually.