Employee Retention

As a business owner, it’s to your benefit to keep your top employees feeling rewarded and appreciated. Showing your employees that you recognize their value is a key factor in employee retention. And with the high cost and time investment involved in recruiting and training new talent, employee retention is more important to the success of your business than ever.

 Reward Your Employees with Life Insurance Using a Split Dollar Plan

Under a split dollar plan, you have the opportunity to reward and retain your key employees. 

There are two types of split dollar plans – collateral assignment/loan regime and endorsement split dollar/economic benefit regime. Each type has unique features to meet various business objectives.

Collateral assignment/loan regime

When the plan is designed this way, the employee owns the policy and the employer lends the premium required to pay for it. The employee is taxed on the interest-free element of the loan. Upon separation of service, the loan may be paid back by the employee or forgiven by the employer. If it is forgiven, there will be tax implications for the employee and the employer will receive a tax deduction.

Endorsement split dollar/economic benefit regime

The employer owns the policy and allows the employee to name the policy beneficiary. The employee’s economic benefit is in the value of the life insurance coverage. At the end of the arrangement, the policy may be transferred to, or purchased by, the employee. 

Potential employer benefits

  • You can select who receives benefits, when they receive them and how much they receive
  • Lack of limits or rules associated with traditional qualified plans
  • Low start-up and administrative expenses
  • You can potentially recoup your business’ investment when a valued employee quits, retires or dies


Potential employee benefits

  • Your business makes the premium payments for personal life insurance protection
  • They have flexibility in the plan design to meet their individual needs
  • They have the ability to receive tax-free income via partial withdrawals and loans
  • Opportunity for tax-deferred growth of cash values


Protect Your Business with Key Person Insurance

Replacing a key person takes time and money − and could cost the business valuable clients during the transition. Key person life insurance offers a death benefit that can help cover financial losses that occur at the death of a key person. This helps assure continuity of the business for employees, customers and creditors.

Taking out a key person policy on your top employees also affirms their value to your business, strengthening the relationship.

Other features of key person insurance

  • The death benefit can be used to recruit and develop a replacement for the previous key employee
  • Coverage is a business asset that enhances your company’s creditworthiness for commercial borrowing
  • The policy’s cash value may be available to your business through a withdrawal or loan if needed
  • The business pays the premiums, and they are non-deductible


 SERPs Offer Key Employees Another Retirement Benefit

A supplemental executive retirement plan, or SERP, is a benefit you can offer to provide retirement income for a group of key employees.

As the employer, you’ll have the flexibility to choose either a fixed-dollar benefit amount or a formula-based benefit amount for your employees, based on participant compensation and/or years of service. You can also design the plan to provide reduced benefits if the employee separates from service before retirement age.

Potential employee benefits

  • Taxes on income are deferred until the employee receives distributions
  • There are no required minimum distributions at age 70½
  • Employees may take distributions before age 59½ without penalty
  • Plan has an easy-to-understand formula driven benefit


Potential employer benefits

  • You can choose the employees that participate
  • The company can recover out-of-pocket costs through the life insurance death benefit
  • The employee’s benefit is predictable for retirement and accounting purposes


Keeping valuable employees contributes to the long term success of your business.  Let us help you find the right options for your company and employees to them both around long term.