corporate owned life insurance

Corporate Owned Life Insurance

Corporate Owned Life Insurance (commonly referred to as COLI) is life insurance on employees’ lives that is owned by the employer. Life insurance is an effective and efficient way to finance executive benefit plans and other liabilities. Under current law, policy cash value in a properly structured COLI plan grows tax-deferred and can represent a valuable asset on the employer’s financial statements. Also, the cash value can be used as a source for payment of the benefits or the settlement of related liabilities. Death proceeds generally are received income tax-free and provide the employer with the potential to recover some or plan costs.

The benefits being financed can include the following:

  • Employer-paid Health Insurance
  • 401(k) Matching Contributions
  • Executive Benefit Programs
  • Employee Disability and Group Life Plans
  • Profit Sharing Contributions

NonQualified Deferred compensation planning

Nonqualified Plans are employer-sponsored plans designed to benefit a select group of management or key employees. In a properly structured plan, the employer can include those employees it chooses without having to abide by any anti-discrimination, participation, or vesting rules that all Qualified Plans must follow.

Nondiscrimination rules require that Qualified Plans benefit most employees on a generally equal basis. These rules do not apply to Nonqualified Plans. In fact, the participants must be limited to a select group of management or key employees or the plan may become subject to the rules of a governing Qualified Plan. As an owner, you can target benefits to yourself and key employees without making similar contributions for the rest of your work force. This in turn makes Nonqualified Plans more flexible than Qualified Plans. Depending on your company’s circumstances, Nonqualified Plans may effectively meet your specific compensation needs.

Nonqualified plans are often used to make up for qualified benefit shortfalls for the targeted, higher-paid group, without having to provide all employees the same supplemental benefits. You may also establish more than one such plan and provide different plan designs and benefit amounts to different employees. The amount of benefits provided is not subject to specific restrictions. Instead, the amounts, as a part of total compensation, must be generally reasonable. Vesting distributions and other plan provisions need not conform to the usual qualified plan standards.

Key Points:

  • Reversing the “Reverse Discrimination” of Qualified Benefits
  • Recruiting New Executives
  • Rewarding Valuable Executives
  • Retaining Valuable Key Executives
  • Retirement Incentivizing Tool

Common Examples:

  • Pre-Tax Compensation Deferral Plan
  • Supplemental Executive Retirement Plan (SERP)
  • Stock Based Compensation Planning

Primary Advantages:

  • Legally discriminatory
  • More design flexibility than qualified retirement plans
  • Unlimited participant contributions (pre-tax)
  • Corporate contributions can create a retention “hook”
  • Ability to motivate executives through a performance based company contribution
  • Employee/employer contributions, plus growth, are tax-deductible when paid

Primary Disadvantages:

  • Employee deferrals and corporate contributions are not tax deductible until paid
  • Top Hat rules apply to eligibility in an employer/employee relationship
  • Participants are general creditors and subject to a substantial risk of forfeiture

Performance-Based Compensation Solutions

Performance-based compensation systems are a practical, bottom line oriented solution to many of the compelling human resource challenges faced by employers. These plans benefit the company as well as the employee by promoting a sense of ownership through both employee and company based performance. As your employees grow more concerned with company performance, revenue and profitability increase, employee turnover decreases, and morale soars.

EBS can provide comprehensive analysis of your current compensation strategies, and develop a new, performance-based solution that addresses your company’s needs. We take a four-step approach to this process:

Step 1:

Needs Assessment


Step 2:

Plan Design


Step 3:

Plan Implementation & Employee Education


Step 4:

Plan Follow-Up & Service


Pre-Tax Compensation Deferral Plan

A Pre-Tax Compensation Deferral Plan is a nonqualifed plan that allows a company to provide a means for its highly compensated employees to postpone current income to a future date. The concept is similar to that of a 401(k) plan in that employees elect an amount of their current income they would like to defer into an account for future use, and an account is created in the employee’s name with interest credited based upon the plan design. However, there are some major differences. With a Pre-Tax Compensation Deferral Plan, the company is not hemmed in by requirements for “qualified” plans such as minimum contributions for all employees with two years of service, lower benefits for highly compensated employees, and higher tax penalties on distribution to employees.

A Pre-Tax Compensation Deferral Plans allow a company to design a plan for their highly compensated employees that is customized to meet their specific needs.

EBS provides a thorough process in assisting in each of the following decision areas:

  • Plan year
  • Eligibility criteria for participants
  • Sources of deferrals
  • Deferral limits – maximum and minimum
  • Deferral as dollar amount or percentages
  • Length of deferral election
  • Enrollment period(s) – for each eligible source of deferrals
  • Account types available to participants
  • Company contributions (match)
  • Vesting in match
  • Options for earnings on deferrals
  • Elected withdrawal before retirement (college education)
  • Early distribution due to financial hardship
  • Retirement payment options
  • Payments upon termination of employment
  • Payments upon death of participant
  • Beneficiary designations
  • Disability provisions
  • Restoration of other benefits
  • Change in control provisions
  • Benefit security
  • ERISA compliance
  • SEC registration

Supplemental Executive Retirement Plan (SERP)

A Supplemental Executive Retirement Plan (SERP) is a non-qualified benefit plan financed by employer dollars that provides key executives with additional retirement income. The payment is often designed to allow the executive to retire with a certain percentage of his or her final salary. The executive has no option to receive any employer contributions as current compensation. The executive cannot defer any of his or her own funds toward the retirement obligation.

A SERP is generally designed to favor the employer since it is financed entirely with employer dollars. The executive’s right to any benefits under the plan are normally restricted through the use of vesting or requiring a set period of service or employment until retirement. These restrictions are often known as “golden handcuffs.”

SERPs are usually designed as either a Defined Benefit or Defined Contribution Plan

EBS offers complete Supplemental Executive Retirement Plan (SERP) design, communication, installation, administration and support for plan sponsors and executives.

Our process

Find out if a COLI program

is right for your company