1. salary continuation planning DI1304 8-13 For Producer use only. Not for use with clients.

2. disclosures In approved states, Disability Income insurance (forms 4501NC, 4502GR and 4503BOE) is issued by Ameritas Life Insurance Corp. located at 5900 O Street, Lincoln, NE 68510. In New York, Disability Income insurance (forms 5501-NC, 5502-GR and 5503-BOE) is issued by Ameritas Life Insurance Corp. of New York located at 1350 Broadway, Suite 2201, New York, NY 10018. Policy and riders may vary and may not be available in all states. This information is provided by Ameritas ®, which is a marketing name for subsidiaries of Ameritas Mutual Holding Company, including, but not limited to, Ameritas Life Insurance Corp., Ameritas Life Insurance Corp. of New York and Ameritas Investment Corp., member FINRA/SIPC. Ameritas Life Insurance Corp. is not licensed in New York. Each company is solely responsible for its own financial condition and contractual obligations. For more information about Ameritas ®, visit ameritas.com. Neither Ameritas nor any of its affiliates nor their agents are authorized to give tax or other legal advice. For specific information applying to this strategy, clients should be encouraged to consult an attorney. Ameritas ® and the bison design are registered service marks of Ameritas Life Insurance Corp. Fulfilling life ® is a registered service mark of Ameritas Holding Company. © 2013 Ameritas Mutual Holding Company DI 1304 8-13For Producer use only. Not for use with clients.

3. what is a salary continuation plan? A tax-favored means for a business or business owner to continue paying an employee who becomes sick or hurt and unable to work A plan that is in place prior to any period of disability. While it is not necessary that it be in writing, it must be known by the covered employees It can be self-insured or insured ERISA considerations For Producer use only. Not for use with clients.DI1304 8-13

4. what is a salary continuation plan? A Salary Continuation Plan defines: Who receives benefits; How much; For how long; and Under what conditions those benefits are payable during a period of disability. For Producer use only. Not for use with clients.DI1304 8-13

5. why establish a salary continuation plan? Chism Ice Cream Company T.C. Memo 1962-6 ; Affirmed, 322 F.2 nd 956 (9 th Cir.1963) The Chism Ice Cream Company paid what it claimed was disability salary continuation to a disabled shareholder-employee for some five years before he died. The Tax Court found that there was no plan and noted the absence of anything detailed in writing. The Tax Court decided the payments were not qualified disability salary continuation benefits, but were, in the eyes of the Court, classified as informal dividends. In addition, the Company was not allowed the deduction of payments to the executive. For Producer use only. Not for use with clients.DI1304 8-13

6. why establish a salary continuation plan? Chesapeake Mfg. Co. Inc. v. Comm TC Memo 1964-214; Affirmed, 347 F.2d 507 (4th Cir. 1965) In the Chesapeake Manufacturing Company, Inc. v. Commissioner case, there had been a history of shareholder-employee withdrawals that were carried on the books of the corporation as employee advances. One of the shareholders was disabled. During this period of disability, the company took a deduction for the advances as compensation payments. However, the Court felt that these amounts could not be considered salary but were mere nondeductible “informal dividends.” There was no showing that at any time the stockholders, directors, or officers of Chesapeake established a health, pension, or retirement plan. “In our opinion the officer -stockholders in making the withdrawals here in controversy took the money of Chesapeake for their personal and permanent use and without thought or intent at that time of making repayment to Chesapeake. Consequently we have concluded and found as a fact that the withdrawals in issue constituted informal dividends to the officer-stockholders for the respective years involved.” For Producer use only. Not for use with clients.DI1304 8-13

7. why establish a salary continuation plan? John C. Lang 41 T.C. 352 (1963) In a situation similar to that of the Chism Ice Cream Company, no evidence of a plan was found when Sales Manager John Lang suffered a heart attack. Salary was continued solely at the discretion of the management, and no formal guidelines were in place. Mr. Lang incurred additional personal income taxes as a result of the court’s finding. For Producer use only. Not for use with clients.DI1304 8-13

8. why establish a salary continuation plan? The regulation under Section 105 of the Internal Revenue Code describes an accident or health wage plan as “... an arrangement for the payment of amounts to employees in the event of personal injuries or sickness.” Plans must be for the protection of employees of the firm... not shareholders Various tax court rulings highlight the need to have the plan, in place, and in writing, or known by the covered employees, prior to the disability For Producer use only. Not for use with clients.DI1304 8-13

9. why establish a salary continuation plan? You should have a plan, preferably in writing. Without one, payments made to a disabled ‘employee’ may be challenged as to their character. Ameritas can provide sample documents that you can provide to your clients. See Salary Continuation Plan Guide - ADV 1057 For Producer use only. Not for use with clients.DI1304 8-13

10. why establish a salary continuation plan? Under an insured Salary Continuation Plan, employers can be selective as to who can and can’t be covered. For Producer use only. Not for use with clients.DI1304 8-13

11. why establish a salary continuation plan? The plan can be set up for a particular class of employees, allowing the employer flexibility in covering those employees he/she wants Benefits can vary by class, allowing the employer flexibility in the amount of benefit to be provided to each class For Producer use only. Not for use with clients.DI1304 8-13

12. what are the advantages of a salary continuation plan? Clarifies that the continued salaries are tax-deductible payments to the disabled employee, which is good for the employer Requires payments to the disabled employee, which is good for the employee Provides stronger “likelihood” of payments by establishment of the plan For Producer use only. Not for use with clients.DI1304 8-13

13. funding the plan To fund a Salary Continuation Plan, a company can choose to: Establish cash reserves; Use current cash flow; or Buy insurance For Producer use only. Not for use with clients.DI1304 8-13

14. funding the plan Financial Issues of Self-Funding a Salary Continuation Plan: A company may not have the cash immediately available; and Current cash flow goes toward paying employees plus replacement for the disabled employee. What happens though when revenue is down? For Producer use only. Not for use with clients.DI1304 8-13

15. funding the plan For Producer use only. Not for use with clients.DI1304 8-13 A company can either: Self-fund the Salary Continuation Plan; or Fund it through insurance policies Business Disability Income Insurance Premiums Insurance Company Salary Continuation Agreement Disability Benefits Plan Participant

16. why insure the plan? The most cost-effective solution is to buy insurance. For Producer use only. Not for use with clients.DI1304 8-13

17. funding the plan For Producer use only. Not for use with clients.DI1304 8-13 Annual Employer Cost for One Disabled Employee* No PlanSelf-FundedInsured Revenue $100,000 Sick Pay - 30,000 Pre-Tax 70,000 Income Tax* - 22,400 Retained Earnings $46,200 Revenue $100,000 Premium - 1,000 Pre-Tax 99,000 Income Tax* - 33,660 Retained Earnings $65,340 plus DI Benefits $30,000 *Approximate annual cost of insuring a 35-year old employee with $30,000 annual benefit to age 65. **Assumes a 34% Corporate tax rate. Revenue $100,000 Income Tax** - 34,000 Net Profit 66,000 Sick Pay - 30,000 Retained Earnings $36,000

18. buy insurance Financial Accounting Standard 112 With a self-funded plan: Payments for employee sick pay must come from company cash funds; In addition, the company must estimate the future cost of sick pay payments and record these as a business liability in the year the disabling accident or sickness occurs; and The employer must make the claims decisions. For Producer use only. Not for use with clients.DI1304 8-13

19. buy insurance Which would an employer rather do: Take on the responsibility him/herself; or Shift the burden to an insurance company? For Producer use only. Not for use with clients.DI1304 8-13

20. buy insurance For Producer use only. Not for use with clients.DI1304 8-13 The decision is made to buy insurance. What is next?

21. government requirements for salary continuation plans (IRS Code 105) The plan should be in writing, although other forms of notice may suffice; The plan must be in effect before a disability occurs; The plan must be communicated to participating employees; The plan must be set up solely for employees (not shareholders, unless also employees); and The benefits cannot be considered excessive. For Producer use only. Not for use with clients.DI1304 8-13

22. ERISA issues Plan should be in writing, regardless of whether the coverage is employer-paid or voluntary Participants should receive a summary plan description If a noncontributory salary continuation plan is used to provide benefits for a select group of less than 100 highly compensated key employees, the program is exempt from most of ERISA’s Reporting and Disclosure requirements Limits the employer’s exposure to punitive damage awards Neither Ameritas nor any of its affiliates nor their agents are authorized to give tax or other legal advice. For specific information applying to this strategy, clients should be encouraged to consult an attorney. For Producer use only. Not for use with clients.DI1304 8-13

23. buy insurance What kind of insurance to buy: Group Long-Term Disability (LTD) Individual DI Insurance (IDI) Combination – Group LTD and IDI For Producer use only. Not for use with clients.DI1304 8-13

24. buy insurance Group LTD Many companies already provide Group LTD to employees There can be limitations to many Group LTD plans For Producer use only. Not for use with clients.DI1304 8-13

25. buy insurance Limitations to Group LTD Typically only protects 60% of income; Often employer-paid, resulting in taxable benefits to the insured; Often has a cap on benefits, such as $5,000/month; Typically can be canceled by the insurance company or the; employer May have contractual limitations: i.e. definition of earned income, etc. Designed for a group of individuals and does not allow each individual to tailor his/her coverage; and Often does not cover certain types of income (i.e., commissions) Bonuses are typically averaged over two or three years. For Producer use only. Not for use with clients.DI1304 8-13

26. buy insurance Supplement with Individual DI Insurance Key Advantages: Excellent policy provisions Noncancelable policies available (Guaranteed Renewable policies often available as well) Insured owns the policy Customer design, extreme flexibility Portable Best of both worlds DI1304 8-13For Producer use only. Not for use with clients.

27. IRS revenue ruling 2004-55 Discusses character of premium payments Waives three-year look back in determining character of premium payments Neither Ameritas nor any of its affiliates nor their agents are authorized to give tax or other legal advice. For specific information applying to this strategy, clients should be encouraged to consult an attorney. For Producer use only. Not for use with clients.DI1304 8-13

28. great opportunity to utilize Guaranteed Standard Issue (GSI) program For Producer use only. Not for use with clients.DI1304 8-13 Employer-Paid and Voluntary Plan Specifications *Except for approved medical residency programs Employer-PaidVoluntaryCore/Buy Up (ER-pd base, EE-pd excess) Minimum Participants 5 (100% participation) Greater of 10 lives or 25% participation 10 lives on ER-paid core; Buy-up minimum varies Occ Class 6A-3A Medical occupations not eligible* 6A-3A Medical occupations not eligible 6A-3A Medical occupations not eligible Discounts 5-9 lives: 15% 10-49 lives: 20% 50-99 lives: 25% 100+ lives: 30% 10-49 eligible: 15% 50-149 eligible: 20% 150-299 eligible: 25% 300+ eligible: 30% 10-49 lives: 20% 50-99 lives: 25% 100+ lives: 30% (discounts apply to core and buy-ups) Max GSI Issue Limits 5-9 lives: Up to $2500 10+ lives: To $8000, based on group size and demographics Up to $5000, based on group size and demographics Up to $8000, based on group size and demographics

29. questions? For Producer use only. Not for use with clients.DI1304 8-13

30. key contacts Your GSI regional director Your agency or brokerage manager Your Ameritas ® sales development team The DI product management team For Producer use only. Not for use with clients.DI1304 8-13