Woman at Work

Secured Incentive Plan

A secure and tax-efficient alternative to non-qualified benefits

With historically low interest rates, we recommend corporations evaluate the benefits delivered with a Secured Incentive Plan (SIP) in comparison to the administrative, accounting and compliance challenges of traditional non-qualified plans.

 

A SIP leverages a loan structure to lock-in the low interest rates while allowing the executive participant to own 100% of their benefits. The simple and elegant structure provides the following benefits:

  • Tax-deferred (or tax-free) cash accumulation for the participant
     

  • Ownership of the asset for the participant (you are no longer an unsecured creditor with respect to your benefits)
     

  • No administrative compliance with 409A or benefit accruals for the company
     

  • Minimal earnings impact for the company

"Now is an excellent time to adopt a Secured Incentive Plan (SIP) for your key employees. Companies can provide tax-efficient benefits and take advantage of the historically low interest rates."

Darren Gallaway, Principal, TRC Financial

Leverage a SIP with Low Interest Rates

Secure Incentive Plan

vs.

  1. No risk of forfeiture for your benefits
     

  2. Tax-deferred or tax-free benefits to the participant
     

  3. Control timing to receive retirement income.
     

  4. Tax-free death benefit to pre-fund retirement income for heirs
     

  5. Tax-free long-term care benefits

Non-Qualified Plan

  1. Risk of forfeiture for your benefits
     

  2. Tax-deferred benefits to the participant (100% taxable for early termination)
     

  3. Limited control over the timing to receive retirement income.
     

  4. No death benefit to pre-fund retirement income for heirs
     

  5. No long-term care benefits

SIP Mechanics

  • Executive (or trust) owns the life insurance policy
     

  • Company pays the annual premiums through a collateral assignment split-dollar arrangement
     

  • Long-term AFR interest rates are locked in for the benefit period
     

  • Tax-deferred (or tax-free) growth of the asset with a death benefit and long-term care benefits if needed
     

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