What is Split Dollar Life Insurance?

Are you a nonprofit organization?

If yes:

1. How many times have you lost your top talent to for profit organizations?


2. When they left, how long did it take you to replace them?


If you answered:

  1. More than once.
  2. A long time, with a few compromises.

You’re not alone.

Far too often we have clients come to us after experiencing exactly this.  An inability to stop employees from leaving for the for-profit world.

But why?

Simply put, the structure of a nonprofit doesn’t allow for companies to provide equity to their executives as a form of compensation.  Instead, the nonprofit organizations rely heavily on the mission and the passion of top talent as their best form of retention.

There is a powerful tool to consider in your quest to retain key employees.


You can reduce turnover by implementing a split dollar life insurance program.  Trust us, we’ve been doing this since the early 90’s.  A split dollar life insurance program can provide key employees with an attractive benefit funded by the organization with the retention characteristics that encourage them to stay put.

Not only that, it’s flexible and cost effective.

So what exactly is split dollar life insurance anyways?  Below are the basics, which we took from our detailed white paper.  You can download it here.

  • Split-dollar life insurance isn’t a form of life insurance product, like term life insurance, whole life or universal life insurance; it is a form of ownership of cash value life insurance.
  • Split-dollar is a strategy that allows the sharing of the cost and benefits of a cash value life insurance policy. Any type of permanent life insurance policy that builds a cash value can be used; however, the type of policy and structure is very important and should be tailored to the objectives of the organization and the needs of the executive/professional (i.e., retirement income, death benefits, etc.).
  • Split-dollar brings together the life insurance and supplemental savings needs of an employee with the premium paying ability of the employer. It appeals to both employers and employees: the employee gets the life insurance protection he/she needs at an affordable cost and supplemental tax-advantaged savings in the form of cash value accumulation. The employer can custom design a program for selected key employees/professionals and provide a valuable benefit on a cost-effective basis. Historically, what has made split-dollar attractive is the opportunity for both tax leverage and interest rate arbitrage.

Want more?  We made a video that discusses the use of a split dollar program at nonprofit organizations – you can watch here.

Split Dollar Life Insurance Video

If you’re a nonprofit and you’re looking to attract, retain, and reward your key executives – give us a call at 617.904.9444 or drop us a line at info@movingebs.wpengine.com

Disclosure: A variety of life insurance products can be used for this split dollar concept, including variable life insurance, which is offered by prospectus. Securities offered through Lion Street Financial, LLC. (LSF), member FINRA & SIPC. LSF is not affiliated with EBS and neither LSF nor EBS provide legal or tax advice. Complex tax rules apply for split dollar arrangements. For complete details, consult with your tax advisor and attorney.

Best of 2020: Restricted Stock and More

2020 Hot Topics: Restricted Stock and More

A new year means new content!  While we get started on 2021’s concepts, take a look at our top three downloads from 2020.  It’s always helpful for us to see what our readers enjoy the most, so that we can continue to create high quality materials to share with you all throughout the year.  2020’s hot topics included restricted stock, NQDC plans, and split dollar life insurance.  Please as always, let us know if there’s anything you’re hoping to see from EBS in 2021.  We look forward to creating and working with you this year.

  • Protecting the Downside Risk of Nonqualified Deferred Compensation Plans
  • Learn the Financial Impact of Deferring Annual RSU Grants
  • Split-Dollar Life Insurance White Paper

This White Paper discusses the risks associated with participating in a Nonqualified Deferred Compensation Plan.  It was written in 2018 by Bill MacDonald, Managing Director for EBS-West and remains one of our most downloaded content items every year.

Most companies that sponsor NQDC’s take measures to ensure funds are set aside to fund future benefits.  Many firms establish rabbi trusts to hold these funds, which provides a measure of certainty that the funds won’t be used for purposes other than benefit payments.

But participant balances in NQDC’s are subject to creditor risk, and bankruptcy could result in a loss of the account.  This White Paper discusses the Deferred Comp Protection Trust, a relatively new structure that protects against this risk.

If you’re interested in learning more on this topic, you may be interested in listening to a recorded webinar that features Brian Yolles, CEO of Stock Shield, the firm that created the Deferred Compensation Protection Trust. 

Nonqualified Deferred Compensation

When stock options gave way to the use of Restricted Stock Units (RSUs), recipients lost the ability to control the timing of taxation.  Taxation of RSUs is triggered when vesting occurs, which is often on a prorated basis over the course of three or four years.

To regain control over the timing of taxation, some NQDC’s allow for the deferral of RSUs, in addition to cash compensation such as salary and bonuses, raising a number of questions for executives. Do I defer or not? What about vesting? Can I diversify into other investments? How will my decision impact tax liabilities?

This case study provides a methodology for answering these questions, and introduces the Restricted Stock Modeler created by EBS.  Find out the pros and cons of deferring or not deferring your RSUs and how your action impacts your financial situation at retirement.

For a deeper dive into deferring Restricted Stock Units, take a look at EBS’ case study on creating a Restricted Stock Wealth Management Program (RS WMP).  By using an NQDC’s short-term deferral account and the redeferral option, you can transform your annual RSU grants into a vigorous wealth-building strategy.

Restricted Stock Deferral

Recently, Nonprofit organizations have been bombarded by proposals to implement Split Dollar programs for their highly compensated executives.  Why is this?  Two major factors stand out:  the 2017 Tax Cuts and Jobs Act imposed a new 21% excise tax on compensation paid by a Nonprofit organization in excess of $1 million; and the relative disadvantage of retirement programs for Nonprofit executives structured under Section 457(f).

This White Paper provides a comparison of Section 457(f) and Split Dollar plans, helping highlight the pros and cons of each.  There is a handy matrix that presents a side-by-side summary of the two structures across a number of key features.  The paper is helpful for Nonprofits that are trying to level the recruiting playing field with for profit entities in search of executive talent.

If you’re interested in learning more on this topic, take a look at A Practical Guide To Accounting For Loan Regime Split Dollar Arrangements.  Written by EBS Managing Director Chris Rich (a former E&Y Tax Partner), it provides an overview of the accounting for split dollar arrangements. 

split dollar life insurance executive compensation

That’s all for 2020.  Be sure to follow our Twitter and LinkedIn to stay up to date with the latest content from EBS in 2021.