With a restricted endorsement bonus arrangement, or REBA, business owners can help key employees build long-term financial security while retaining top talent. This simple REBA life insurance strategy can also help attract the best employees in today’s competitive job market.
As we dive into this blog series, we start with one of the easiest strategies to implement, the restricted executive bonus plan, also commonly known as the restricted endorsement bonus arrangement (REBA).
In today’s job market, employers are always looking for ways to attract and retain top talent. One strategy is offering straight cash bonuses, but these often have little lasting impact on employee retention. A cash bonus is usually spent quickly — whether on a new truck, vacation, home renovations or for debt repayment. Once spent, the impact of the bonus soon fades. A more effective strategy for retention is a REBA.
With a REBA, the employer pays a bonus, or salary increase, to selected employees who use the funds to purchase life insurance on their own lives. Alternatively, the bonus may be in the form of premiums on an employee-owned policy paid directly to the insurance carrier. The bonus amount can be determined by the employer and can be different for each employee.
Each bonus is taxable as compensation to the employee. Often the employer will elect to “gross up” the bonus to cover the employee’s expected tax liability. This double bonus approach results in an employer-paid benefit for which the employee has no out-of-pocket costs.
There are two levels of restriction the employer can use in the plan. The first is to file a restrictive endorsement with the insurance company, which limits the employee’s access to the policy cash values for a specified period unless the employer consents. The second is to require an employment contract in which the employee agrees to return some portion of the total plan bonuses paid if they leave before a specified period of time.
A REBA is unique because it combines three elements — a Section 162 bonus plan, a restricted endorsement on the insurance policy and an employment contract. The combination creates a very attractive benefit for key employees with significant advantages for the employer.
Benefits for the employee:
Benefits for the employer:
The Ash Brokerage Advanced Markets team has a lot of experience partnering with advisors like you to offer business owner clients solutions for employee retention. Ash can help you identify your business owner clients looking to do more for their most valuable employees, evaluate your clients’ current employee retention strategies and talk to your clients about characteristics of an effective plan. The Advanced Markets team can also assist your clients in designing a suitable plan, including:
What it comes down to: Business owners want simple but effective ways to retain their best employees in this competitive market. With a REBA, your business owner clients can offer more than quickly-forgotten cash. Instead, they can help an employee in building long-term financial security for their family.
Your Ash Advanced Markets team is here to help ensure your success in offering this bonus plan structure. Don’t wait. Reach out to our team at (800) 589‑3000. For other effective strategies, check back in as we continue our key employee retention plan series.
Next up — the Endorsement Split Dollar Plan.
3 Effective Key Employee Retention Strategies: A Series
Strategy #2: Employee Retention Strategies: Endorsement Split Dollar Arrangement