Giving A Vanilla Non-Qualified Fringe Benefit More Flavor

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He may be old news now, but Jay Leno was very big news back in 1992 when took charge of The Tonight Show, replacing the “King of Late Night,” Johnny Carson, who had dominated post-primetime ratings for 30 years.  A stand-up comedian by trade, Leno liked to joke that he had three steps in his job description:  Write joke.  Tell joke.  Get check!

Too often we tend to think just as simply regarding executive bonus plans, the most flexible and least complicated benefit in the non-qualified marketplace:  Offer benefit.  Buy policy.  Write check!

In fact, as show host Leno had to significantly broaden his approach to handle the greater responsibilities of his new role.  And we should do the same to demonstrate how a broader executive bonus plan might be the most attractive and most versatile way to lock in key employees.

Consider how an employer-sponsored, executive-owned plan can address a far-reaching array of risk management needs:
  • Income Replacement 101 – A person’s most valuable asset is the ability to generate income.  Dollars spent on an executive bonus plan don’t have to be committed to life insurance.  Consider using a portion of the plan cost for an income replacement policy to provide tax-free dollars if disability occurs during working years.
  • Income Replacement 102 – Pre-mature death will also deny an employee’s family income.  Benefit dollars can also be used to economically fund a term insurance policy large enough to replace the income that was anticipated over the remaining years of a key employee’s working life.
  • Estate Liquidity – Employees with death tax issues aren’t the only ones who need liquid flexibility to assure effective settlement of their estate.  Consider funding a portion of the death coverage for income replacement with a permanent policy which will provide cash in the estate for the life of the employee.
  • Critical Illness and Long-term Care Expenses – Nothing can unexpectedly disrupt sufficient growth of net worth for retirement more than either of these two events.  Life policy riders can economically offer protection, especially if added to permanent coverage already intended as part of the executive bonus plan.
Two planning suggestions will further enhance the attractiveness and value of the plan:
  • Avoid sticker-shock – The benefit cost is deductible to an employer, but forewarn the plan participant that the amount will appear on next year’s W-2.  Even better, determine the amount to spend on the plan, withhold the anticipated tax due, and then spend only the balance on coverage.
  • Make it a true lifetime benefit – Structure premium schedules that result in paid-up policies, making it unnecessary for the employee to incur cost to carry coverage beyond retirement.

To further discuss this “super executive bonus” concept, or any advanced marketing issues in your casework, contact Tom Virkler at 706-614-3796 or tom@cpsadvancedmarkets.com.

For What It’s Worth:  Relying on income from other sources, Jay Leno never spent the money from the checks for his $10-15 million salary from The Tonight Show.  His net worth is estimated at around $500 million.  He currently hosts Leno’s Garage which features his $52 million collection of classic automobiles.