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Nonqualified deferred compensation plans can play a key role in how you manage your company’s finances. Revenue and profit help drive growth and business success, but there are a lot of other financial variables that contribute to the sustainability of your company. Payroll, taxes, expenses, and corporate-owned life insurance are only a few buckets of a company’s finances. It’s essential to have deferred compensation plans in place to help provide stability.

"Payroll, taxes, expenses, and corporate-owned life insurance are only a few buckets of a company’s finances. It’s essential to have deferred compensation plans in place to help provide stability."

So, what are deferred compensation plans?

Essentially, they’re a way that businesses pay employees at a later date—usually in a lump sum. Payroll, which varies depending on the size and category of your business, can be one of your largest expenses. Having nonqualified deferred compensation plans in place can help your business endure the slow periods of cash flow while offering your employees the benefit of future compensation.

There’s a common perception that nonqualified deferred compensation plans apply only to a company’s executives who earn relatively high incomes. In reality, small business owners have the opportunity to reward any of their top-performing employees with nonqualified deferred compensation plans.

A simple way to include this type of compensation program into your business model is through a life insurance policy. When your business owns a policy with New York Life, it can be used for the benefit of key employees.

Nonqualified deferred compensation plans can be funded using a life insurance policy in different ways.

Some businesses use a supplemental executive retirement plan (SERP) to defer compensation, which can provide an employee with supplemental retirement income at a date that is agreed on in advance. Another solution is corporate-owned life insurance (COLI), where the business owns and pays the premiums on a life insurance policy for an employee and compensates the employee through benefit payouts at a later date—usually when the employee reaches retirement.

When a business pays the premiums on a COLI policy, this can allow the employee to be compensated by the employer at a later date—including all benefits outlined in the terms. A COLI policy can be included in a business’s general asset reserve for nonqualified deferred compensation plans, complying with generally accepted accounting principles (GAAP).

Small businesses are an integral part of our economy and our way of life.

New York Life offers a range of diverse and innovative small business solutions. Connect with our team of trained professionals today and learn how they can help you set up your business for a secure and successful future.

Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.

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