Employee benefit Avoiding ERISA

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.