Thanks Philip! Although I can't take credit for "creating" the concept. It has been around for decades.
The
contractual part is easy enough. A written guarantee binding the Employer to a written set of parameters to the Employee, as it relates to the funding of the contract terms.
This gives the Employee 'peace of mind' the Employer won't back out or change the agreements reached later on in the employment term. Employee
can leave at any time. But loses the cash if they do. So they are motivated to stay on their own accord and not leave. Hence the name,
Golden Handcuffs.
The
fringe benefit phrase simply denotes this (Golden Handcuffs) is a program
in addition (fringe) to their current
benefit package which all employees are qualified for. It's an
extra incentive for this particular Employee. (Not available for all employees.)
Now the
Non-Qualifed portion simply refers to the fact it ISN'T a
"Qualified" program as noted by IRS Tax Code.
Qualified Programs, all employees are normally included. A 401K retirement fund is a "Qualified" plan. Although with recent market losses many are referring to it as a 201K!
No one can be excluded if they are a full-time employee of the business. It is funded with 'Before Tax Dollars'. Benefits grow tax deferred and are taxed upon removal at a further date in time. Normally not before the Employee reaches the age of 59 1/2. Penalties would be applied for early withdrawal.
A
Non-Qualified plan's main difference is, it is funded with
"After Tax Dollars". It still grows tax deferred (As Cash Values in a life insurance policy with this instance.).
The other huge difference is employees can be
DISCRIMINATED against! YEAH! Employers still have the ability to make key decisions WITHOUT the wrath of the IRS or Gov't. Discrimination in the sense an Employer does not have to make the offer to all Employees equally since it is Non-Qualified.
Does that make sense??? Qualified Plans, the Fed's state ALL employees must be treated equal to gain the tax advantages associated with them hence, Qualified. Non-Qualified plans do not take advantage of the tax breaks so the Gov't does not mandate that ALL employees should receive equal treatment.
This is still a HUGE advantage to the Employer though! Even without the tax break! You'll see why later on.
At the time the Golden Handcuff plan is written and agreed upon, the Employer still needs to figure out a way to pay the Employee when it is time. Life insurance fits the bill.
The business entity is the Owner of the life policy. They are the Beneficiary of the policy. They are the Payor of the policy. Depending upon the policies chassis, it can be funded heavily in the early years to enhance internal growth. The face amount is for whatever limit set forth in the contract. This case $100GR.
For between $2000-$5000 a year an Employer can purchase the $100GR on the life of the Employee. At the end of the 15 year term there is more than enough funds inside the life policy to pay off the agreed upon amount. With plenty left over for the Employer. If done correctly, at the end of the term not only the Employee receives his agreed upon amount. But the Employer in many cases will have ALL the funds invested into the vehicle returned to them as well.
So by getting their investment BACK, the tax advantages of a Qualified plan are nullifed. Plus he retains his Employee for the years needed. And in most cases he MAKES money in the end! What could be GREATER than that?
Qualified Plans are open to all employees and governed by the Gov't and and Act called ERISA.
Non-Qualified Plans are not controlled by any group. Not open to all employees by code or law. And can be used to fund retirements, guarantee cash payments at a later date in time, create cash immediately in the event of the death of the Employee.
Another use for this amazing tool is called
"Key Man" Insurance. Which is another class! LOL
Success and Regards... Mike
http://www.CrashCourseMarketing.com
...The fastest growing eZine for Sales
Professionals and Internet Marketers...