This client’s SERP - funded with COLI - provided financial security for a key person’s family
Our client, a medium-sized employer in the Midwest, implemented supplemental executive retirement plans (SERPs) for a few key employees. To help offset this cost on their balance sheet, the client also acquired COLI.
Several years into the program, one of the participants tragically died, leaving a widow and young children. The COLI funding allowed the employer to offer an accelerated death benefit in the SERP document. These benefits helped provide financial security for the widow and ensured the children have resources for higher education. Further, the excess from the COLI death benefit allowed the employer to conduct a nationwide search – with relocation assistance – for the right person to fill the key position.
While the loss was a tragedy for the family and the business, the story could have ended much worse. The SERP death benefit was structured so beneficiaries would pay ordinary income tax on the benefit. It was designed this way because the employer did not want to have the annual administration required to provide an income-tax free benefit. However, once the employer saw the amount that needed to be withheld from the beneficiaries for taxes, they had a change of mind. The family received a gross-up to cover the taxes, and the plan design was modified so that future beneficiaries would not face the same dilemma.
The other participants are nearing retirement and see the immense value of the supplemental retirement benefit. That promise, coupled with the compassion displayed, has enhanced loyalty and significantly reduced turnover.
Ask IZALE how we can help your business do the same.