1. A business protection strategy to retain top talent
Retain, reward, and recruit with an Executive Bonus Plan

2. Retain Reward Recruit The Need
Employer offers key employees life insurance funded with a bonus to the employee that is tax-deductible to the employer
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When CEB research asked small business owners what the #1 threat was to their business, “Competition” was answered more times than any other.
That means that small businesses are looking for ways to <CLICK>retain, <CLICK>reward, and <CLICK>recruit key employees. A properly structured Executive Bonus (Section 162 Bonus Plan) can assist the employer in offering <CLICK>key employees life insurance funded with a bonus to the employee that is tax-deductible to the employer.

3. Why Executive Bonus (Section 162 Bonus Plan)?
Employer can choose employees
Generally not subject to Section 409(a)
Current deductibility (within reasonable compensation limits)
Cost effective and flexible for both employer and employee
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Why would an Executive Bonus plan make sense to both the Employer and the Employee?
First, the Employer can fully discriminate and <CLICK>choose employee’s they want to offer the plan to. A properly structured exec bonus arrangement is generally not subject to IRC section <CLICK> 409(a). Code Section 409(a) has put strict rules in place for employers and heavy fines may be imposed for non-compliance.  Many traditional methods of providing non-qualified executive benefits are subject to 409(a). 
<Click> The employer can deduct the bonus paid to the employee as a salary expense (within reasonable compensation limits)
A Section 162 Bonus Plan can be <CLICK>cost effective and flexible for both the employer and employee.
An executive bonus (“Section 162” plan) provides a way for a key employee to <CLICK>purchase life insurance using employer dollars (the business “purse”) and to use the policy to accumulate tax deferred cash value accumulation for supplemental retirement income.  No required distributions age 70 ½ as there are for IRA’s and certain qualified plans.  No 10% penalties for accessing funds prior to age 59 ½ with a properly designed policy. 
Cash value life insurance can be used for supplemental income

4. Four Steps to Implementation1
The employer enters into an executive bonus arrangement with key employee(s).  1
The employer enters into an executive bonus agreement with key employee(s).  2
The key employee purchases a life insurance policy. 1
The employer enters into an executive bonus agreement with key employee(s).  2
The key employee purchases a life insurance policy. 3
The employer bonuses the premium to the employee.
The employee pays taxes on the bonus and the employer can deduct the bonus. 4
Employee enjoys the benefits of the life insurance. 1
The employer enters into an executive bonus agreement with key employee(s).  2
The key employee purchases a life insurance policy. 3
The employer bonuses the premium to the employee.
The employee pays taxes on the bonus and the employer may take a deduction for the bonus paid, assuming reasonable compensation
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The first step to setting up a 162 Bonus Plan is for the employer to first <CLICK>decide which key employees they would like to reward and then enter into the bonus arrangement with those employees.
Next, with the help of the employer, the <CLICK>key employee purchases a life insurance policy. The key employee is owner of the policy, and names the beneficiary to the policy. 
Then the employer makes <CLICK>premium payments on the policy and the premiums are treated as bonus income to the key employee. The key employee pays tax on the bonuses at ordinary income rates.
The key employee’s <CLICK>survivor beneficiary(s) receive income tax free death benefit proceeds.
Additionally, since the key employee is the owner of the policy, he/she has access to: tax deferred accumulation and, living benefits through policy loans or withdrawals. 

5. How does a Section 162 Bonus Plan work?
During employment
Executive Bonus Plan
Employer
Life insurance company
Key employee
Deductible
Premium
Pays taxes on bonus
Gives annual bonus
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The first step to setting up a 162 Bonus Plan is for the <CLICK>employer to first decide which <CLICK>key employees they would like to reward and then enter into the <CLICK>bonus arrangement with those employees.
Next, with the help of the employer, the key employee <CLICK>purchases a life insurance policy. The key employee is owner of the policy, and names the beneficiary to the policy. 
Then the employer makes <CLICK>premium payments on the policy and the key employee pays <CLICK>tax on the bonuses at ordinary income rates.
IRS

6. How does a Section 162 Bonus Plan work?
At death
Life insurance company
Key employee’s beneficiaries
Death benefits
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The key employee’s <CLICK>survivor beneficiary(s) receive <CLICK>income tax-free death benefit proceeds.

7. How does a Section 162 Bonus Plan work?
During employment and/or retirement
Life insurance company
Key employee
Living benefits
Cash values, policy distributions
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Additionally, since the <CLICK>key employee is the owner of the policy, he/she has access to the policy’s living benefits: <CLICK>tax deferred accumulation and policy loans or withdrawals.

8. Packaging-in-Action: The Need
Phil is the founder and majority shareholder of Packaging-in-Action, a closely held C-Corp with 25+ years of experience and 98 employees. Greg, the Plant Manager, is vital to the continued success and positive growth of the business. One of Phil’s main concerns is competition from larger businesses in the same industry and believes PIA is at a substantial risk of losing key employee’s to the competition. While Phil can’t provide significant non-qualified benefits to all his employee’s, he is willing and able to provide Greg with a non-qualified benefit that will not only encourage Greg to remain with PIA, but to continue to work until retirement age.
Phil is the founder and majority shareholder of Packaging-in-Action, a closely held C-Corp with 25+ years of experience and 98 employees.
<CLICK>Greg, the Plant Manager, is vital to the continued success and positive growth of the business.
<CLICK>One of Phil’s main concerns is competition from larger businesses in the same industry and believes PIA is at a substantial risk of losing key employee’s to the competition.
<CLICK>While Phil can’t provide significant non-qualified benefits to all his employee’s, he is willing and able to provide Greg with a non-qualified benefit that will not only encourage Greg to remain with PIA, but to continue to work until retirement age.

9. Packaging-In-Action: The Goals
While this closely held business cannot provide as robust a benefit package to all employees, they do want to provide a benefit to individuals they’ve identified as crucial to their continued success.
Looking for a simple way to reward and encourage employees to remain with the business
Wants to help supplement these key employees’ future retirement benefits as well as provide them with a meaningful benefit today
So what is Phil and Packaging-in-Action looking for?
The want a <CLICK>simple way to reward and retain employees.
They want to help <CLICK>supplement these key employee’s future retirement benefits as well as provide them a meaningful benefit today.
The business wants a plan that’s <CLICK>easy to implement and allows the business to deduct the bonuses today.
The business wants a plan that’s easy to implement and allows it to deduct the bonuses today

10. One product that can help solve the Protection, Income, or
Lincoln WealthAdvantage® Indexed UL can help Packaging-in-action retain and reward Greg
One product that can help solve the
Protection,
Income, or
Business needs
for
business needs
of a client with a conservative market outlook.
This is where the advisor introduces the Lincoln WealthAdvantage Indexed UL to help Phil retain and reward Greg for his loyalty to Packaging-in-Action.
The Lincoln WealthAdvantage Indexed UL is <CLICK>one product that can be designed to help solve the <CLICK>protection, <CLICK>income, or <CLICK>business needs of a client with a <CLICK>conservative market outlook.
And while this product can be designed in a number of different ways, today we’re going to focus on the <CLICK>the business needs of Phil and Greg.

11. Important Facts Packaging-in-Action Packaging-in-Action
Tax rate
34%
Packaging-in-Action
Tax rate
34%
Greg, a key employee
Age 45
Packaging-in-Action
Tax rate
34%
Greg, a key employee
Age 45
Age of retirement 65
Personal tax rate
28%
Packaging-in-Action
Tax rate
34%
Greg, a key employee
Age 45
Age of retirement 65
Before we get into the design of the Bonus Plan, let’s look at a few key facts.
Packaging-in-Action has a tax rate of <CLICK>34%.
Greg is a <CLICK>45 male who plans to retire at age <CLICK>65. His personal tax rate is <CLICK>28%.

12. Packaging in Action: The Solution
Executive Bonus Plan
Packaging-In-Action
$10,000 premium through age 65
Lincoln WealthAdvantage® Indexed 6%
Greg
$3,400 deduction
$2,800 paid in taxes annually
$10,000 annual bonus through age 65
Lincoln WealthAdvantage® Indexed 6%
Greg
IRS
$31,535
With the help of his advisor, <CLICK>Packaging-In-Action and <CLICK>Greg establish a <CLICK>Section 162 Bonus plan.
A <CLICK>Lincoln WealthAdvantage Indexed UL is purchased on Greg. He is the owner and names his spouse, Marsha, as his beneficiary. The advisor recommended the WealthAdvantage because it can not only provide death benefit protection but also potential income to supplemental Greg’s traditional retirement assets. Depending on how the agreement is structured, there could be some additional features of the WealthAdvantage that could be useful.
PIA pays a $10,000 <CLICK>premium to the insurance company to age 65, as long as Greg remains employed. PIA determined it wanted to bonus its key employees 20% of their salary… Greg’s $10,000 bonus is equal to 10% of his $100,000 salary.
This premium is a <CLICK>bonus to Greg and is recorded as income, which means Greg has to pay <CLICK>tax on the bonus at ordinary income rates. Assuming a 28% tax rate the tax on the $10,000 bonus is <CLICK>$2800 a year.
Because Greg owns the policy and PIA doesn’t, PIA can take a current <CLICK>deduction as salary expense which comes to $3,400 assuming a 34% tax rate.
To help Greg understand the benefit of this plan not only to Marsha if he passes away unexpectedly, the advisor illustrated 20 years of <CLICK>distributions from the WealthAdvantage Indexed UL starting at retirement.
Since Greg didn’t pay any premium out-of-pocket, his only expense for this policy is the tax he paid on the bonus. Under this scenario, Greg pays 56,000 in taxes over 20 years and, assuming 6% in the WealthAdvantage Indexed UL, can borrow 630,000 over the next 20.
Using a bonus formula as 10% of salary to age 65 (salary of $100K per year), a case is designed using a minimum non-mec death benefit for Greg.    The company gets a current deduction for premium paid (salary expense assuming reasonable compensation limits) and Greg, as owner of the policy, has both living benefits and gets to name a beneficiary for survivor benefits of the life insurance contract.   Tax deferred cash value growth, income tax free death benefit for named beneficiary and advantaged access through loan strategies.   (may want to show loans to pay tax on bonus with new product, etc.)
Annualized tax-free distribution ages 66-85
Packaging-in-Action assumed tax rate is 34%. Greg’s assumed tax rate is 28%.
Male, age 45, standard nontobacco, Lincoln WealthAdvantage® Indexed UL, solve for a minimum non-MEC death benefit with a $10,000 annual premium paid for 20 years, increasing by cash death benefit option for 20 years then switch to a level death benefit option, solve for maximum annualized participating loans from ages 66 through 85 with $1 at maturity. 6% assumed index crediting. At 1% with guaranteed crediting policy lapses at age 70. State of North Carolina.

13. The advantages for Greg
Total out-of-pocket expense over 20 years to pay taxes on his bonus
- $56,000
Total out-of-pocket expense over 20 years to pay taxes on his bonus
$56,000
Total amount of money Greg can take as income tax-free loans to supplement his retirement income
$630,700
Greg’s death benefit at age 85
+ $169,621
Total out-of-pocket expense over 20 years to pay taxes on his bonus
$56,000
Total amount of money Greg can take as income tax-free loans to supplement his retirement income
$630,700
Greg’s death benefit at age 85
+ $169,621
Net benefit to Greg at age 85
$744,321
Total out-of-pocket expense over 20 years to pay taxes on his bonus
$56,000
Total amount of money Greg can take as income tax-free loans to supplement his retirement income
+ $630,700
What are the advantages to Greg?
His total out-of-pocket expense over 20 years to pay the taxes on his bonus is <CLICK>$56,000.
So that’s his cost… but assuming 6%, he can take distributions of over <CLICK>$630,000 out of his policy over 20 years and still have a death benefit of almost <CLICK>$170,000 giving him a total benefit to Greg of <CLICK>$744,000 at age 85.
Packaging-in-Action assumed tax rate is 34%. Greg’s assumed tax rate is 28%.
Male, age 45, standard nontobacco, Lincoln WealthAdvantage® Indexed UL, solve for a minimum non-MEC death benefit with a $10,000 annual premium paid for 20 years, increasing by cash death benefit option for 20 years then switch to a level death benefit option, solve for maximum annualized participating loans from ages 66 through 85 with $1 at maturity. 6% assumed index crediting. At 1% with guaranteed crediting policy lapses at age 70. State of North Carolina.

14. Packaging-in-Action: The Final Result
PIA set up an Section 162 Bonus Plan for Greg
Greg chose to purchase a Lincoln WealthAdvantage® Indexed UL
Packaging-in-Action gave an annual bonus of $10,000 each year to Greg which PIA can deduct
What was the advisor able to propose to Packaging In Action?
To set up a <CLICK>162 Bonus Plan for Greg to retain and reward him for his service to PIA.
Greg then chose to purchase the <CLICK>Lincoln WealthAdvantage Indexed UL because it not can provide his spouse with death benefit protection, but it also balances guarantees and growth potential giving him access to living benefits.
Packaging In Action then gave an <CLICK>annual bonus of $10,000 each year to Greg and was able to deduct that bonus as a salary expense.
Greg has the potential to take <CLICK>policy distributions during retirement to supplement his traditional retirement assets.
Greg has the potential to take policy distributions during retirement

15. Executive Bonus (Section 162 Bonus Plan) Lincoln DesignIt Sales Concept
The Executive Bonus (Section 162 Bonus Plan) sales concept in DesignIt can show employers and employees the power of using a Lincoln life insurance solution to retain, reward, and recruit key employees.
Single bonus, double bonus, specified amount, or % of premium
Show taxes paid from policy values
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In this presentation you probably noticed that we didn’t show actual product illustrations but instead we showed ledgers that delineate the costs and benefits to the employer and employee. You can present the same ledgers to your customer using the Executive Bonus sales concept in Lincoln’s DesignIt illustration software.
It’s flexible enough to show a variety of agreements, paying taxes from policy values, and even calculates IRRs based on the employee’s net outlay.
Calculates IRRs based on employee’s net outlay

16. Important Information
Issuers:
The Lincoln National Life Insurance Company, Fort Wayne, IN
The Lincoln National Life Insurance Company does not solicit business in the state of New York, nor is it authorized to do so.
All guarantees and benefits of the insurance policy are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.
In some states, contract terms are set out and coverage may be provided in the form of certificates issued under a group policy issued by The Lincoln National Life Insurance Company to a group life insurance trust. Products, riders and features are subject to state availability. The insurance policy and riders have limitations, exclusions, and/or reductions. Check state availability.
Distributor: Lincoln Financial Distributors, Inc., a broker-dealer
Policies: Lincoln LifeElements® Level Term (2014) — rates as of 03/14/16, policy form TRM5065/ICC14TRM5065 with endorsement END7013 and state variations; TRM5065N.2/15 in NY. Lincoln LifeCurrent® UL policy form UL5023 and state variations; UL5023N in NY. Lincoln LifeGuarantee® UL (2013) – rates as of 02/08/16 policy form UL6000 and state variations. Not available in NY. Lincoln LifeGuarantee® SUL (2013) policy form SUL6008 and state variations. Not available in NY. Lincoln LifeReserve® UL policy form UL5051 and state variations; UL5051N in NY. Lincoln LifeReserve® Indexed UL Accumulator (2014) policy form UL6024/ICC14UL6024 and state variations; UL6024N in NY. Lincoln WealthAdvantage® Indexed UL policy form UL6046/ICC15UL6046 and state variations; UL6046N in NY. Lincoln WealthPreserve® Survivorship IUL policy form SUL6035 and state variations; SUL6035N in NY. Lincoln AssetEdge® VUL (2015) policy form LN683 and state variations; LN683 in NY. Lincoln VULONE (2014) policy form LN696 and state variation. Not available in NY. Lincoln SVULONE (2016) policy form LN667 and state variations. Not available in NY. Lincoln PreservationEdge® SVUL policy form LN699 and state variations; LN699 in NY. Lincoln LifeEnhance® Accelerated Benefits policy forms ABR-7001, ABR-5762, LR630 and state variations.
Variable products: Policy values will fluctuate and are subject to market risk and to possible loss of principal.
Variable products are sold by prospectus, which contains the investment objectives, risks, and charges and expenses of the variable product and its underlying investment options. Read carefully.

17. Important Information
Loans and withdrawals reduce your policy’s cash surrender value and death benefit, may cause the policy to lapse, and may have tax implications. While interest accounts are protected by a 1% guaranteed minimum interest rate, policy charges remain in effect and could reduce the policy value. Past performance is no guarantee of future results. Competitor information is from public sources deemed reliable from peer group companies. Although every attempt has been made to ensure the accuracy of the information provided, it cannot be guaranteed. The lookback rates are for illustrative purposes only, since Lincoln LifeReserve Indexed UL Accumulator (2014) was not available during the entire lookback period. The lookback rates are based on the average of annually compounded S&P 500® Index returns (excluding dividends) for the lookback period through 2013 using segments that mature the 15th of each month, then applying the current cap and/or participation rate and guaranteed floor for each account option. Actual caps and participation rates would have been different over the different time periods and varied from time to time within those periods. The lookback rates reflect past S&P 500 Index changes, have no bearing on future changes in the S&P 500 Index, and are not guaranteed. Actual results may be better or worse than shown. Past performance is not indicative of future results. The S&P 500 Index is a product of S&P Dow Jones Indices LLC (“SPDJI”), and has been licensed for use by The Lincoln National Life Insurance Company. Standard & Poor’s®, S&P® and S&P 500® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by The Lincoln National Life Insurance Company. The Lincoln National Life Insurance Company's Product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index. Lincoln Financial Group® affiliates, their distributors, and their respective employees, representatives, and/or insurance agents do not provide tax, accounting, or legal advice. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Please consult your own independent advisor as to any tax, accounting, or legal statements made herein. Lincoln LifeEnhance® Accelerated Benefits Rider is not long-term care insurance nor is it intended to replace the need for long-term care insurance. The benefits are supplementary to the primary need for death benefit protection. The rider may not cover all of the costs associated with the chronic illness of the insured. The benefits of the rider are limited by the policy’s death benefit at the time of claim; long term care insurance does not typically contain this limitation. Accelerated death benefits may be taxable and may affect public assistance eligibility. Additionally, long-term care benefit riders may not cover all costs associated with long-term care costs incurred by the insured during the coverage period. All contract provisions, including limitations and exclusions, should be carefully reviewed by the owner. Tax qualification The benefits paid under this rider are intended to be treated as accelerated death benefits under section 101(g)(1) of the Internal Revenue Code of 1986, as amended (the “Code”). The Company considers the benefits paid under this rider that do not exceed the maximum Per Diem Limit as prescribed by law to be eligible for exclusion from income under section 101(a) of the Code to the extent that all applicable qualification requirements under the code are met. If benefits are paid in excess of the applicable Per Diem Limit, or if benefits are paid and all applicable qualification requirements are not met, the benefits may constitute taxable income to the recipient. This rider is not intended to be a qualified long-term care insurance contract under section 7702(b) of the Code. The tax treatment of the accelerated death benefits may change, and you should always consult and rely on the advice of a qualified tax advisor.