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A Retention Bonus Plan enables you to gain the loyalty of your top performers — without being subject to ERISA regulations.

How does a Retention Bonus Plan work?

How does a Retention Bonus Plan work?

In a Retention Bonus Agreement, you can offer an incentive in which you pay the employee a bonus if they stay for an agreed-upon period of time (usually no more than 10 years) or until a triggering event, such as retirement, disability, or death. If they do not stay with the company, they will forfeit the bonus. The plan is very flexible and after the original time period is achieved, a new time frame and bonus amount can be added.

In a nutshell, here's how it works: your employee gives your company permission to purchase a whole life insurance policy that is owned by the company with the key employee as the insured.1 The agreement specifies the amount of time the employee must remain with your company to receive the specified bonus2 amount which is paid from the policy's cash value.

Plan Advantages for your business

Creates Loyalty

A large bonus that feels attainable is enough to make key employees more likely to stay with your company. The concept of a benefit to their loved ones should they die is perceived as a culture of caring.


You choose which employee(s) are part of the plan.  You can tailor each agreement to offer participants different bonus amount and other terms. You plan design can include additional bonus amounts to stay even longer once the initial bonus has been earned.

Enhanced Business Value

Policy cash value can be listed as an asset on your business’s books, and can be tapped in case of an emergency.3

Cost Effectiveness

If properly structured, the policy death benefit can ultimately provide your business with recovery of plan costs. And when funded by life insurance, this plan can have less of an effect on your bottom line in the long term.

Easy Administration

The simplicity of the plan makes it easy for you (and employees) to understand — and easy for your business to implement.

Tax Mitigation

as a bonusAs long as it is reasonable compensation,4 the bonus may qualify for a tax deduction when it is paid as a bonus.

How much insurance coverage do I need to purchase for each key employee in the plan?

How much insurance coverage do I need to purchase for each key employee in the plan?

Our team can help you choose a Whole Life Policy amount for each participant in your plan which:

  • protects your business if the key employee dies;
  • generates the cash value your business  needs to pay the agreed upon bonus; and
  • covers your cost of plan benefits and administration through the life insurance death benefit proceeds.

Fill out this form to let our team help you structure your Executive Benefits package to be more advantageous to you, your business, and your most valuable asset: your people.

Thank you!

1 The notice and consent requirements for employer-owned life insurance, set forth in IRC § 101(j), should be followed prior to the policy being issued so that the death benefit is not subject to income tax.
2 The bonus should be paid within 2½ months after the close of the company’s tax year in which the employee is required to stay. Otherwise, the agreement may be considered a nonqualified deferred compensation agreement subject to stringent rules and regulations, which could cause unfavorable tax consequences if certain requirements are not met. If IRC § 409A requirements are not complied with, which include having a formalized written plan, the employee may have to recognize all of the deferred compensation, whether received or not as taxable ordinary income, in addition to paying a 20% excise tax and interest in the year there is noncompliance.
3 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses or is surrendered, any loans considered to be gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under age 59½, any taxable withdrawal is also subject to a 10% penalty tax.
4 IRC Section 162 requires compensation to be “reasonable” in order for it to be tax deductible to the business.