Section 162 Executive Bonus Plans
For various reasons, such as benefit security concerns, unrolling split dollar plans, etc., some companies provide a Section 162 Executive Bonus Plan. In a 162 Executive Bonus Plan, the employer enters into a bonus agreement with the executive. Through this arrangement, the employer uses tax-deductible bonuses to assist the executive in paying premiums on his or her own personal life insurance policy.
This life insurance policy can be structured to provide supplemental income for the executive and his or her family. Additionally, the executive retains all ownership rights in the policy and names his or her heirs as beneficiaries. However, it is possible to restrict access to the values of the policy for some period as determined by the employer. This option is attractive for retention purposes. At retirement, the executive can receive income from the life insurance cash value. In the event of the executive’s death, his or her heirs will receive either annual income or a lump sum death benefit from the life insurance policy.