Rewarding and Retaining Key Employees With a Section 162 Executive Bonus Plan

How Saltarelli Industries Implemented a Creative Alternative to Traditional Retirement Plans

Over the past several years, I’ve had the opportunity to work with many successful business owners who are searching for better ways to reward and retain their most valuable employees. One recent experience that stood out involved a close friend and client of mine, Nick Saltarelli, owner of Saltarelli Industries, a company specializing in trucking and excavation services.

Nick came to me roughly six months ago with a challenge many business owners face today. He had identified seven key employees who played an instrumental role in the success of his company, and he wanted to do something meaningful to reward them while also increasing long-term loyalty and retention.

Like many employers, Nick initially considered implementing a traditional qualified retirement plan such as a 401(k). Together, we spent considerable time reviewing the pros and cons of that approach. Traditional qualified plans absolutely have value. Their primary objective is to help employees save for retirement using pre- tax contributions. Employees receive a tax deduction today and defer taxes until retirement, when the assumption is that they may be in a lower tax bracket. However, there are also limitations that often cause business owners to explore alternative strategies. For one, 401(k) plans can be expensive and administratively burdensome to implement and maintain. They are also highly regulated and rigid in design, often requiring employers to include broad groups of employees rather than selectively rewarding key individuals. Additionally, younger employees frequently struggle to get excited about a tool they may not fully benefit from for another 30 or 40 years. While retirement planning is critically important, many employees are looking for flexibility and benefits they can potentially access during their working years as well.

Another important consideration involves taxation. While qualified plans defer taxes today, no one truly knows what tax brackets will look like decades from now.

Although the traditional theory suggests retirees may pay lower taxes later, there is also a very real possibility that taxes could increase in the future, potentially causing individuals to pay more taxes later than they would today.

Because of these concerns, many business owners are increasingly interested in exploring non-qualified alternatives. After reviewing Nick’s goals, I introduced him to a strategy I frequently utilize with business owners called a Section 162 Executive Bonus Plan. Unlike traditional qualified plans, a Section 162 Executive Bonus Plan is built around specially designed permanent life insurance policies focused on long-term cash accumulation, protection, and tax-free retirement income.

These plans offer several key advantages that make them particularly attractive business owners interested in rewarding and retaining key employees:

• The employer has complete flexibility regarding who receives the benefit and how much each employee receives. Unlike qualified plans, there are no broad participation requirements or contribution limitations imposed on the employer.
• These plans are funded with after-tax dollars, which creates a significant long-term advantage: properly structured policies can provide tax-free retirement income later in life.
• Liquidity and flexibility. Unlike many qualified plans that impose penalties before age 59½, the cash value inside these policies can often be accessed earlier without taxes or penalties when structured correctly. This creates tremendous planning flexibility for employees. Funds may potentially be used for real estate investments, education expenses, weddings, business opportunities, emergencies, or other major life events.
• Tax-free death benefit. If an employee were to pass away prematurely, their spouse, children, or chosen beneficiaries would receive a tax-free payout.
• Living benefits. If an employee experiences a qualifying chronic illness, critical illness, or long-term care event, they may be eligible to access a portion of the death benefit while still living. These types of benefits are becoming increasingly valuable because they help protect families against some of the largest financial risks people face today — all while being integrated into the same policy structure.
• Long-term tax-free retirement income. If the employee lives a long and healthy life — which is ultimately the goal — the policy can be designed to create substantial supplemental retirement income later in life.
• Stability. These particular permanent life insurance products are fixed insurance products, meaning they do not directly participate in stock market losses. Many of them include a guaranteed floor, often around 1%, meaning the policy is protected from negative market years while still maintaining upside growth potential during stronger markets. Historically, long-term performance in the range of approximately 6% to 8% tax-free has made these policies very attractive accumulation vehicles for many individuals seeking stability and long-term growth potential without market downside exposure.
• Engineered for efficiency. Based on the employee’s age, health, gender, and the employer’s budget, the policy is typically designed with the smallest death benefit allowable under IRS guidelines. This minimizes insurance costs and maximizes the amount of premium directed toward cash value accumulation and future retirement income.
• “Single Bonus” arrangement or a “Double Bonus” arrangement. Under a single bonus structure, the employer provides a bonus to the employee, and the employee is responsible for paying the taxes associated with that compensation. Under a double bonus structure, the employer not only bonuses the premium amount, but also provides an additional bonus specifically intended to help cover the employee’s tax liability. After reviewing both options, Nick elected to implement a double bonus arrangement for his seven key employees. His goal was simple: provide meaningful benefits without requiring his employees to contribute out of pocket.
• Portability. Because the policies are owned personally by the employees — not the employer — employees can take their policies with them if they ever leave the company. They may choose to continue funding the policy, modify it, or discontinue it altogether. The policy belongs to them.
• Employer tax advantage. In many cases, the bonuses paid to employees through a Section 162 Executive Bonus Plan are fully tax-deductible to the business.

The response from Team Saltarelli was incredible. The employees were genuinely grateful and deeply appreciative of the investment being made in their futures.

“When Danny & Nick introduced our team to the Executive Bonus Plan, it honestly made all of us feel appreciated and valued as employees and as people. It’s rare to work for a company that invests so heavily in its team’s future and well-being without asking employees to carry the cost themselves. Knowing that our families, health, and retirement are taken seriously gives us a real sense of security and loyalty to the company. It showed us that Nick truly cares about the people who help make the business successful every day.” ~ Saltarelli Team Member

“Hearing about the new retirement plan Nick put in place for us was honestly unexpected and incredibly meaningful. A lot of companies talk about valuing employees, but Nick actually backs it up with actions. Providing these kinds of benefits at no cost to us made everyone feel respected, supported, and motivated to continue giving their best every day. It’s reassuring to know we work for someone who genuinely cares about our futures and our families.” ~ Saltarelli Team Member

Beyond simply creating a financial benefit, the strategy strengthened loyalty, morale, and long-term retention within the company. For business owners seeking a creative and flexible way to reward and retain top talent, a non-qualified Section 162.

Executive Bonus Plan can be an extremely attractive solution. As Nick Saltarelli and Saltarelli Industries discovered firsthand, these plans can provide meaningful value not only to employees, but also to the long-term strength and culture of the business.