Deferred Compensation Plans

What is a deferred compensation plan?

In a deferred compensation plan, an employer temporarily withholds some of an employee’s payment and then issues it to him or her at a later time.  A retirement plan is the usual example: after retirement, an employee receives further compensation for work that he or she already did.

The strategy behind a deferred compensation plan is in knowing that the deferred earnings will be more valuable to their recipient at a later time.  For instance, if a portion of an employee’s pay is withheld, he may qualify for a lower tax bracket in the present.  Then, after he is retired, he can receive the deferred pay in a yet-lower tax bracket!  The company pays out the same amount, but the employee incurs considerably less income tax.

How does this relate to life insurance?

Universal life insurance is a good vehicle for a deferred compensation plan.  As the employer pays premiums, the policy builds equity.  The equity accumulates interest tax-free!  After the employee’s retirement, the equity is used to fund a retirement plan.

Who should use a deferred compensation plan?

Employers should consider offering such a plan to employees who pay income taxes and are concerned with retirement planning.  Such an arrangement carries worthwhile advantages:

• It requires no external authorization
• It can decrease taxes without decreasing compensation
• The employer can selectively apply it to hand-picked employees
• It arranges for an employee’s future

What’s next?

Interested in learning more about universal life insurance at no cost?  Speak with one of our life insurance advisors at 1-800-823-4852 today.  Our advisors can also assist you in purchasing a policy and provide agent services.