Case Study: Unlocking Wealth and Retaining Top Talent with an Executive Bonus Program

Background:

A successful mid-sized business wanted to create a compelling executive compensation strategy that would both attract and retain top talent while offering significant financial benefits. To achieve this, they sought to implement an executive bonus plan with a Split Dollar Loan Regime, leveraging The Stream Protection Plan.

The Challenge:

The business aimed to:

• Retain high-performing executives through a structured long-term incentive.
• Provide a competitive, tax-efficient compensation package.
• Ensure executives received a significant retirement benefit while securing company interests.

The Strategy: Golden Handcuffs through a Split Dollar Loan Regime

The company established a Split Dollar Loan Regime, where:

• The company lent funds to the executive to fund a Stream Protection Plan policy.
• The executive used pre-tax loaned money to pay the insurance premium, enabling them to grow their retirement assets in a tax-efficient manner.
• The loan was secured by assigning a portion of the policy’s death benefit back to the company.

This structure created a Golden Handcuffs effect:

• If the executive stayed with the company for a pre-determined number of years, they would gain full ownership of the policy and its accumulated benefits.
• If the executive left early, the company retained control over the policy’s value, minimizing financial risk.

How It Works:

1. The business loans the executive money to fund a Stream Protection Plan policy.
2. The executive uses these funds to purchase a leveraged life insurance policy, which grows tax-free.
3. A portion of the policy’s death benefit is assigned to the company to cover the outstanding loan balance.
4. The executive earns tax-free retirement income from the policy’s cash value while maintaining financial security.

The Outcome:

The program proved to be a powerful incentive, helping the company:

• Retain a key executive for over 15 years until retirement.
• Provide the executive with four times leverage on their contributions, maximizing their wealth-building potential.
• Ensure a win-win financial arrangement, where both the executive and the company benefitted from the policy’s structure.

At the executive’s retirement party on March 17th, they celebrated not just a successful career but also an unexpected windfall—a pot of gold far greater than anticipated, thanks to the compounding benefits of the Stream Protection Plan.

Why It Works:

• Tax-Efficiency: The executive paid no upfront taxes on the loaned amount, and retirement withdrawals were tax-free.
• Leverage: The executive received multiples of their original contributions, amplifying their retirement savings.
• Retention: The structured plan ensured that key executives remained loyal to the company for the long term.

Conclusion:

By integrating a Split Dollar Loan Regime with the Stream Protection Plan, this business successfully implemented a highly effective executive retention tool while creating significant financial growth opportunities for both the company and the executive.

The moral of the story? Golden Handcuffs don’t just retain talent—they unlock a true financial pot of gold.

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