November 3, 2025

Employee benefit Avoiding ERISA Small employer? Reward key employees with exclusive retirement benefits using a 162(a) Executive Bonus Plan. Legally avoid ERISA and select who you reward. Learn how. MAPFL BLOG How Small Employers Can Offer Exclusive Benefits (and Avoid ERISA Rules) with a 162(a) Plan Stop being limited by standard retirement plans! This guide explains the power of the 162(a) Executive Bonus Plan, a legal, non-ERISA strategy that lets you choose which key employees receive valuable, personalized life insurance-based benefits. If you’re a small employer who has been told you must offer the same matching benefits to everyone—due to complex ERISA regulations surrounding 401(k)s and IRAs—you now have a compliant alternative.The 162(a) plan gives your business the flexibility to reward your top talent individually, without the obligation of company-wide coverage. By utilizing this specific structure, you can boost employee retention and loyalty among your most valuable performers while remaining fully compliant with all labor laws. Discover the crucial steps to setting up this plan correctly and ensuring your benefits strategy is both smart and secure. Get Custom Service Quote Let's Get Connected! Bring your health journey to life! Get a custom health plan consultation today. Let's connect and create a plan that fits your life perfectly. Text or Call Now As a small business owner, you likely want to reward your key employees with valuable retirement benefits. However, you may have run into a common obstacle: retirement advisors often say you must offer the same benefits to everyone under traditional plans like 401(k)s and IRAs due to ERISA (Employee Retirement Income Security Act) laws.But here’s the good news: there are alternative options that give you more control — without violating labor laws.One powerful strategy is called the 162(a) Executive Bonus Plan. This plan allows you, as the employer, to offer life insurance-based benefits specifically to selected employees — without having to extend the same benefits to your entire workforce.Key Advantages of a 162(a) Executive Bonus Plan:Selectivity: You can choose which employees receive the benefit — no need to offer it company-wide.Compliance: This approach does not violate ERISA regulations.Simplicity: It’s much easier to set up compared to a traditional retirement plan.Employee Ownership: The employee owns the policy, including any cash value buildup.Tax Deductibility: The business can often deduct the bonus payment made to fund the insurance policy.Of course, it’s essential to work with a knowledgeable professional to structure the plan correctly and stay fully compliant with regulations.If you’re interested in learning how to reward your top performers while staying flexible and compliant, we’d love to help you explore this smart alternative. Conclusion + CTA The widespread belief that small employers must offer blanket retirement benefits to all employees, primarily due to ERISA laws governing traditional plans like 401(k)s, is a costly misconception. The 162(a) Executive Bonus Plan offers a clear, legal path forward. This strategy allows you to strategically reward your key employees with selective, high-value life insurance benefits, securing your talent pipeline and significantly boosting loyalty without the financial burden and complexity of mandatory company-wide matching.If you are ready to move beyond one-size-fits-all retirement solutions and implement a benefits strategy that truly reflects your business goals and retention needs, the time to explore a 162(a) plan is now. However, compliance is paramount. To ensure your plan is structured correctly and fully compliant with all state and federal regulations, it is essential to consult with a knowledgeable professional. Contact us today to learn how we can help you set up a smart, compliant, and highly effective executive bonus plan. Can I reward only certain key employees without violating ERISA? Yes—if you use a nonqualified approach like a Section 162 executive bonus funded with individually owned life insurance. Qualified plans (e.g., 401(k)s) must satisfy ERISA/IRS nondiscrimination testing (ADP/ACP), which limits selective benefits, but a properly structured bonus plan is generally not an ERISA pension plan and can be offered selectively. Internal Revenue Service+2Groom Law Group+2 What exactly is a “Section 162 Executive Bonus Plan”? It’s simply a taxable bonus your company pays to a chosen employee, who then uses it to buy and personally own a permanent life insurance policy (with potential cash value). The employer typically deducts the bonus under IRC §162 as an ordinary and necessary business expense. Legacy Group+2Legal Information Institute+2 Is a 162 bonus plan a retirement plan like a 401(k)? No. It isn’t a qualified retirement plan; there’s no ERISA nondiscrimination testing or plan limits, and the employee’s bonus is taxable income. Its appeal is targeted retention and potential cash-value accumulation in a policy the employee owns—often used to supplement (not replace) retirement savings. Internal Revenue Service+2Modern Life+2 What compliance basics should I know before setting one up? Use a simple written bonus agreement, report the premium bonus as W-2 taxable wages (many employers “double bonus” to offset taxes), and confirm deductibility under IRC §162. Coordinate with licensed insurance and tax pros to align design, documentation, and payroll reporting. MassMutual Blog+2Legacy Group+2 Can I choose exactly which employees receive this benefit (and in what amounts)? Yes. Because it’s a discretionary bonus program, you can select participants and tailor amounts. Courts and guidance distinguish bonus compensation programs from ERISA pension plans, allowing this selectivity when structured as compensation rather than a retirement plan. ERIC+1 Podcasts / Blogs Latest Episodes Employee benefit Avoiding ERISA Byadmin November 3, 2025 Blog Small employer? Reward key employees with exclusive retirement benefits using a 162(a) Executive Bonus Plan. Legally avoid ERISA and select who you reward. Learn how... Read More Estate Planning Documents Byadmin November 3, 2025 LEO,Podcast Protect your assets and healthcare wishes with essential estate planning documents. Learn the differences between living wills and healthcare power of attorney, and understand how trusts vs wills... Read More Pretax Life Insurance Option Byadmin August 19, 2025 Blog Can business owners deduct life insurance premiums? Usually no — but a few entrepreneurs may qualify for powerful tax advantages through special strategies like Section 162 plans. Learn who qualifies... Read More

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