Deferred Promises

Katt, Peter C.
October 1993
Journal of Financial Planning;Oct93, Vol. 6 Issue 4, p151
Academic Journal
The article presents information that the insurance plans purchased by the business owners who have installed deferred-compensation plans funded by life insurance have been disappointed because the plans haven't provided the kind of employment performance enhancements the salespeople promised. The deferred compensation plan funded by life insurance accrues benefits that are paid out when the employees retires and it is fully funded if the employee dies before retirement. However, business owners have several major problems with deferred-compensation plans funded by life insurance. The length of time until most key employees receive any benefits is so great that the plan's ability to reward and motivate is practically nil. The employer's ability to reinforce positive performance or change negative habits with a plan that has such a long time horizon is very low and the plans are inflexible because of this long time horizon. The author says that even though the deferred bonus plan is very informal, employing an attorney specializing in ERISA (Employee Retirement Income Security Act of 1974).


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