Case Study: Leveraging Existing Executive Bonus Plan Life Insurance for Split-Dollar Programs

Experienced talent is in high demand, and there is a short supply of it. Many non-profit organizations are facing  fierce competition for their top executives. Given the complex nature of the non-profit organizations and the niche markets they operate in, leaders wonder if their retention strategy will be sufficient to both keep key executive talent and plan for future development of key talent into positions of senior leadership.

The Client

Recently, TriscendNP assisted one such organization in designing and implementing a plan that was designed to achieve the following objectives that were deemed important by its leadership:

1. Retain the services of a new executive;
2. Plan for a benefit improvement in anticipation of a future promotion;
3. Provide retirement cash flow for the executive and benefits for his family in the event of premature death;
4. Allow the organization to recoup its capital, including a rate of return when the executive passed away.

The Solution

Working with the leadership team, TriscendNP designed and implemented an Executive Bonus Plan with an initial defined funding schedule as a percentage of salary. However, the program called for a future benefit enhancement to align with an expected promotion to a senior leadership position.  The benefit enhancement would germinate from a conversion from the Executive Bonus Plan to a Split-Dollar Program that achieved the required objectives.

The Split Dollar arrangement would be designed with three life insurance policies intending to perform two specific functions:

• Repayment Policy: to repay the organization
• Accumulation Policy and Executive Bonus Policy: to provide retirement cash flow and death benefit for the executive and their family

The Result

The executive entered an Executive Bonus Plan funded by the organization as a percentage of salary.  Over next three years, the organization expensed $6.9 million including the excise tax.

In year three, the executive was promoted to a senior management role.  TriscendNP converted the existing Executive Bonus Plan policy to a Split Dollar Program. An additional Accumulation Policy was added to provide the enhanced retirement benefit for the executive, and additional death benefits for beneficiaries. The Repayment policy was placed to provide the organization capital recovery at death.