Supplemental Income and Insurance Program

A Flexible Supplemental Retirement Income Solution

Introduction

Qualified plans such as 401(k) and pension programs alone do not provide adequate retirement income for many highly compensated employees. While employers have traditionally used deferred compensation plans to address these concerns, the compliance and administrative burdens created by IRC §409A make these plans less attractive than in the past.

The Supplemental Income and Insurance Program (SIIP) offers many of the benefits of deferred compensation plans, with several additional attractive features:

Under the Jobs and Tax Reduction Act, corporate tax rates decrease making this solution even more attractive.

Employer Benefits:

• Exempt from §409A, §457, and ERISA regulations

• No balance sheet benefit liability

• Minimal ongoing plan administration

• Sponsor may recover all of its funding costs, plus interest

Participant Benefits:

• Benefits are comparable to deferred compensation plans

• Benefits are not subject to employer creditor claims in the event of bankruptcy

• Benefits are not subject to a substantial risk of forfeiture

• Earnings accumulate on a tax-deferred basis

• Distributions are tax free and protect against increasing rates

• Life insurance protection both before and after retirement

Supplemental Income and Insurance Program (SIIP) – How it works

The SIIP uses the tax advantages and unique product features of indexed universal life insurance to create participant benefits that are unavailable through any other funding vehicle.

The employer makes loans to each plan participant that are used to fund tax-advantaged life insurance policies. These contributions are not currently taxable to the participant. While the participant is employed, loan interest is either imputed or accrued based on the Applicable Federal Rate (AFR). Sponsor loans continue to accrue after retirement based on the AFR.

Assets grow on a tax-deferred basis, and require no active money management. Earnings are based on positive equity returns, usually indexed to the S & P 500, during rising market periods, while guaranteed minimum crediting rates eliminate market-based negative returns during a declining market. This means that your money does not go backwards when the market declines. At retirement, the participant receives tax-free income through policy loans and withdrawals, protecting against potential future increases in tax rates. All policy loans and sponsor loans are repaid from policy insurance proceeds at the death of the participant. Any excess death benefits are paid to the participant’s beneficiaries on an income tax-free basis.

Conclusion

The Supplemental Income and Insurance Program is a cost-effective, flexible benefit solution that can help C Corporations and Not-for-profit entities attract and retain their most valuable employees. Unlike deferred compensation plan, the employer is not required to book a growing benefit liability, and it ultimately recovers all its funding costs, plus interest. The SIIP offers participants a powerful, tax-advantaged too to supplement their retirement income without incremental cost to employer.

About Optimum Strategies

Optimum Strategies is affiliated with Cash Balance Advisors, a national company specializing in assisting highly compensated business owners and executives increasing their top line tax deductions while minimizing their retirement benefits for a secure lifestyle that will last beyond their lifetime.