As a successful business owner, you know that quality employees are in high demand, so you want to be proactive in designing a compensation package that provides incentives for them to stay.

Farm Bureau can help design a restricted bonus arrangement for your business that can serve as an effective “golden handcuff” ― a strong incentive to encourage key employees to remain loyal to your company. This fringe benefit allows your company to provide life insurance protection for key employees on a tax-deductible basis.

A restricted bonus arrangement can provide many benefits:

You select which employees will receive the benefit and for what amount

The arrangement is easy to set up and administer ― only a one-page document; IRS approval not required

The salary bonus is tax-deductible to your business

The employee uses the bonus to pay the life insurance premiums (bonus is considered ordinary income for tax purposes)

At retirement, the policy’s cash value is available to supplement the employee’s retirement income on a tax-favored basis ― it’s taxed only if it’s worth more than it cost (employee gets credit for the basis on all premiums paid)

Death proceeds from the life insurance policy are generally received income-tax free by the key employee’s beneficiary, and may be structured to avoid estate taxes if the employee sets up an irrevocable trust to own the policy ― contact an agent to learn more about irrevocable trusts.

Restricted Bonus Arrangement Eligibility
Almost any business can provide restricted bonuses to its employees. Your Farm Bureau agent can help determine if your business is eligible.

Restricted Bonus Arrangement Guidelines
In a restricted bonus arrangement, you, as the employer, select which employees will receive the benefit, and those selected employees sign a Restrictive Endorsement, which temporarily restricts their right to surrender or make loans against the policy’s cash value. You decide when the restriction will end ― on a specific date, at retirement or when the employee reaches a certain age. An employment contract secures the employee’s services and creates the “golden handcuff” with a vesting schedule.

In addition, you may choose to add a double bonus feature, where your business increases the tax-deductible bonus to cover both the premium and the income tax due on the total bonus, meaning the key employee has no additional out-of-pocket expense for this valuable benefit.

Talk with a Farm Bureau agent today about initiating a restricted bonus arrangement. It can be an attractive, low-cost way to reward and retain employees whose hard work helps make your business profitable.