Salary Continuation

Salary Continuation is a nonqualified incentive plan for selected key persons in the company which has minimal effect on business cash flow and surplus.

Salary Continuation is also ideal for highly compensated executives who find themselves in higher tax brackets with each additional raise or bonus. Such a plan defers income from the peek earning years to some future date, usually retirement, when the highly paid executives are likely to be in a low tax bracket.

Another important feature that Salary Continuation offers to the executives beneficiaries, is the ability to continue a portion of or all of the executives current income, for a predetermined period of time.

How Does It Work?

Other key advantages are:

1. No IRS approval is needed to approve the plan.
2. Employers are free to select the eligible participants, and benefits are flexible.
3. Corporations can recover all costs to include a tax-free gain to corporate surplus to compensate for use-of-money function on capital tied up in the plan.
4. Such plans help with recruiting and retention of key employees.
5. Retirement benefits are not usually vested.
6. The plans can be discontinued at any time.
7. They provide a deductible benefit program.
8. Nonqualified plans are easy to establish and administer.

From the executive's point of view, a nonqualified plan is attractive because:

1. Benefits can be designed to fit the individual needs for each plan participant.
2. There is no reportable taxable income to the executives until benefits are actually received.
3. The plan can reduce the need for the executive to invest after-tax dollars in personal life insurance and retirement programs.