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Principal® Select Reward Plan
Date
Name and title
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Business Owner & Executive Solutions – For Growing Businesses
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Financial Needs
• Retirement funds – Do I have enough?• Healthcare – How will I pay for it when I retire?• Survivor needs – What if I die too soon? • Will I have financial security?• Taxes?
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Popular Selective Retirement Income (Executive Benefit) Plans
• Deferred Compensation– Executive defers salary therefore
deferring income tax until benefit is paid
– Corporation books a liability– Ultimate control/Golden handcuffs– Can be informally financed with a
corporate-owned asset– Employer contributions/match are
made with after-tax dollars– Provides deferred tax-deduction for
employer– IRC Section 409A compliance
required– Plan-level administrative service fees
• Principal Executive Bonus PlusSM – Executive owns the asset– Company gets a current tax
deduction for employer contributions
– Executive pays income tax on employer contributions
– Distributions are tax-advantaged if life insurance is used to finance the benefit
– Limited Employer control/ Golden handcuffs
– No cost for administration
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Deferred Compensation Plans – Reality Check
Employer Challenges
• S corporation/LLC
– Not available for owners
• Deferred tax deduction
• Cost of administration
• Accounting
– Balancing assets and liabilities
Executive Challenges
• Security of the promise
• Who owns the asset?
• What happens to the benefit at death?
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Executive Bonus Plans –Reality Check
1. Employer – Control– Restrictive Agreement– Repayment Obligation
2. Executive – Current Taxation– Contribution is taxed although, executive
may receive a tax bonus from the employer
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Principal Select Reward Plan
• Financial protection in the event of a premature death
• Financial security to help ensure you don’t outlive your income
Self-Completing Solution
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Principal Select Reward Plan How it Works
Employer and executive enter into two agreements1. Endorsement Split Dollar
• Executive is allowed to name a beneficiary for the death benefit of a life insurance policy
2. Principal Select Reward Plan (Unfunded/Unvested)• Employer promises to pay a lump-sum bonus to the
executive within 30 days of the executive meeting a specified service requirement
Self-Completing Solution
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Principal Select Reward Plan - How it Works
When the executive vests in the benefit (fulfills the service requirement)– Ownership of the life insurance policy
• Transfers to the executive – Executive owns the policy free and clear
• Pays income tax from policy values • Receives income-tax free income at retirement• Income-tax free death benefit to survivors at death
Self-Completing Solution
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Employer pays premium for policy
Executive is endorseda death benefit
Principal Select Reward Plan During the Service Period
EMPLOYER EXECUTIVE
#1
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Principal Select Reward Plan During the Service Period
Executive pays tax on economic benefit
EXECUTIVE
#2
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Principal Select Reward Plan During the Service Period
The Select Reward Plan agreement creates an unfunded SERP-type
Benefit for the Executive
The Select Reward Plan agreement creates an unfunded
SERP-type benefit for the executive
UnfundedSERP
#3
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Executive owns policy and can take income from policy
Principal Select Reward Plan at Distribution
Corporate-owned life policyownership is transferred to the executive to satisfy the
promised bonus
Executive pays tax on the amount of the bonus/value of policy
EXECUTIVESERP benefit/Life insurance
policy
Executive ownsLife Policy withcash value &death benefit
#4 #5
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Principal Select Reward Plan
FOR EMPLOYER• Flexibility with both
selection and financing options
• Golden handcuff• Minimal IRC Section
409A compliance• Free administration!
FOR EXECUTIVE• Survivor death benefit
during service period• Minimal tax cost
during service period for death benefit
• Lump-sum bonus when vested
• Retirement income
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Free Plan-Level Administrative Services
Plan-level Administrative Services
• Dedicated home office administrator• Provide economic benefit amount to employer• Consolidated plan-level
reports• Employer-view Internet
access• Tax-value reporting upon the transfer of the
policy to the executive
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The Tailored Edge You Need
Our Business Owner and Executive Solutions offer you the complete package –
the expertise to help you find the right solutions, a portfolio of products to choose from, and the plan administrative services you need to focus on your business, and
leave the details to us.
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Disclosures
While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter
covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal
Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
Insurance products from the Principal Financial Group® (The Principal®) are issued by and plan administrative services are provided by Principal National Life Insurance Company (except in New York) and Principal Life Insurance Company. Securities offered through Princor Financial Services
Corporation, 800/247-1737, member SIPC. Principal National, Principal Life and Princor® are members of the Principal Financial Group, Des Moines, IA 50392.
No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system,
without prior written permission from the Principal Financial Group.
Copyright ©2008 Principal Financial Services, Inc.
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