Case Study: Split-Dollar Arrangements

Our Executive Retention & Retirement Solutions team was engaged by an organization to review a legacy Split-Dollar Life Insurance arrangement, put in place 25 years ago to provide supplemental retirement income for a highly compensated employee of the organization. The Split-Dollar policy was due to be ‘rolled out’ during the employee’s impending retirement, however, there was concern that due to several tax law changes over the past 20 years, there could be negative tax consequences if the policy cash build-up was transferred to the employee.

After a review of the Split-Dollar plan and other Section 457 retirement plan documents, and taking into consideration the application of Section 409A, our team was able to restructure the plans without adverse consequences, and we enhanced the future payout by reducing the annual tax liability to the employee. We also provided cash flow modeling to help the organization and the employee better understand the source and distribution of funds over time, as well as the applicable taxes due. Our team provided financial planning services as well, to assist the employee with a more comprehensive retirement solution.

Supplemental insurance and customized retirement plans (e.g., ‘Non-qualified’ plans, Section 457 plans, and Split-Dollar Insurance) can help both non-profit and for-profit entities retain and reward their key employees. However, there are financial planning pitfalls that need to be addressed in the specific advice provided to the employee and the employer. Our team is experienced in the many planning areas important to proper and appropriate employee benefit plans, from legal and financial advice to plan design, implementation, administration, and funding.