We’ve talked a bit on the blog here before about Split-Dollar plans, and how many high income earners are supplemented and multiplied with executive benefits packages like Split-Dollar. NCAA football coaches for example, often are the recipients of the benefits associated with Split-Dollar. We’ve also talked about how supplemental benefits can help an organization of any size grow, by providing executive benefits to help recruit new talent, as well as keep good talent on your payroll. Today we wanted to take a little time to focus on how Split-Dollar plans can help Community Banks.
Community Banks Can Use Split-Dollar for Recruitment & Retention
Employer owned split-dollar life insurance is a strategy of sharing both the obligation and benefits of life insurance with a high ranking employee, and also provides an incentive to retain key employees or executives. If we could show you an IRS approved incentive and retention plan for your key executives that can compete with community bank stock option plans, and which has minimal corporate accounting and regulatory issues, would you be interested?
How does it work?
An IRS approved executive supplemental retirement benefit plan that is unencumbered by FASB liability issues and regulatory oversight of other non-qualified benefit programs (IRS section 409a) and meets legal banking requirements (Regulation O, OCS2004-56) Essentially the employer is responsible for funding the policy, while the employee is provided a portion of the death benefit proceeds. The benefit is an incentive for the employee as these proceeds permit the employer to provide a death benefit to the employee which is often less than the real economic cost would be.
Here’s How It usually shakes out, in this play of the playbook.
- The Bank Selects a group of executives to be covered and allocated agreed upon annual premium(s) to invest in the program
- Corporate owned life insurance contracts are purchased on the executive, based on the allocated premiums
- Split-dollar agreements *pursuant to Treasury Regulation 1.61-2(b)(3)) are executed by both parties detailing the shared cash and death benefits under the program
- A separate deferred compensation agreement is executed to provide for retirement benefits if the executive remains in employment.
Results for the Executive
- The executive receives an extremely attractive incentive cash retirement benefits for little to no out of pocket coast
- Executive also receives a significant pre and post retirement death benefit
Results for the bank
- Bank provides long term incentive and retention tool for key executive talent
- The Bank books the plan as a corporate asset (policy cash values) on its balance sheet
- The Bank is guaranteed refund of it’s cost at retirement or death
- Regulatory issues are minimized, and administration is simplified
This all sounds fine and dandy but how do you get it done? It’s always best to meet with Mark to go over the specifics of your account(s) and better define your needs before making any big moves. This option is perfect for small to medium sized community banks who may not be able to offer competitive stock option packages for quality talent. To learn more about how we can get your high ranking executives some more tax efficient income at retirement, feel free to fill out our contact form or give us a call! We’re always looking to help!