Nonprofit Executive Case Study

Client Profile and Fact Pattern

Key Executive for a Nonprofit

• Nonprofit wants to provide competitive compensation package, including a post-retirement income stream
• Way for nonprofits to compete with for-profit institutions with compensation packages
• Provide a death benefit to executive for estate planning purposes
• Nonprofit prioritizes cost recovery for executive benefit
• Wants to avoid the 21% excise tax on executive income in excess of $1M
   

Questions to Ask

• Are you concerned with retaining, rewarding, and recruiting your key executives?
• How competitive is your current compensation package, especially when compared to for-profit institutions?
• What deferred compensation options do you currently offer your key executives? When did you last review your plans to ensure they are as tax efficient as possible?
• Are you interested in cost recovery for your deferred compensation offerings?
   

Case Study

• Client is a nonprofit credit union who is looking to hire a new CEO. The credit union does not offer a robust deferred compensation package but wants to attract and retain the best possible candidate.
• The credit union identifies a 55-year-old candidate that it wants to hire for the role.
• Utilizing loan regime split dollar, the credit union provides both a death benefit and retirement income to the CEO while ensuring cost recovery to their plan.
• A policy designed for maximum cash accumulation.
• The CEO owns the loan regime split dollar policy. The credit union lends the premium and has a collateral assignment for the balance of the loan. Interest on the loan can be paid or accrued annually until the loan is repaid upon the death of the CEO. 
• The CEO has tax-free access to life insurance policies for supplemental retirement income – so long as the collective cash surrender value of the policies exceeds the amount due on the loan.
• Upon the death of the CEO, the loan owned to the credit union is repaid in full and the remaining death benefit is paid out to the CEO’s beneficiaries.
   

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