A salary continuation plan is a corporate sponsored benefit generally designed to replace an executive’s income in the event of his/her death, retirement or disability. The benefit plan is exempt from ERISA and must be confined to a select group of highly compensated people.

How long does salary continuation last?

How Long Are They Eligible to Receive Benefits? Essentially, the Salary Continuation Law pays for the period of one year from the date of injury.

Who pays for a salary continuation plan?

employer
LESSON 10: USES OF LIFE INSURANCE A salary continuation plan is set up between the employer and employees and is funded by the employer. The benefits provided under the plan will determine the cost of the plan.

What is salary continuance benefit?

In short, Salary Continuance Insurance: Provides an income stream in the event that an employee is unable to work due to illness or injury until the employee returns to work or reaches age 65 (shorter benefit periods can be chosen). Offers very cost effective premiums, usually less than 1% of insured payroll.

What are salary continuation plans?

A salary continuation plan describes in writing, before any disability occurs, what an employer will do in the event an employee becomes disabled. With such a plan, the employer can continue paying all or part of an employee’s salary. Having the plan in writing protects all parties and is strongly recommended.

What is the difference between severance pay and salary continuance?

Salary continuance occurs when an employer terminates the employment relationship, but continues to pay the employee’s regular pay and benefits until the end of the notice period without requiring the employee to perform any work. The severance is paid out over time.

What is the purpose of a salary continuation plan?

Salary continuation plans are implemented by companies to provide additional supplemental retirement income to selected key executives. The plans are funded 100% by the company for the future benefit of the key employee. Should the plan participant die prematurely, the executive’s beneficiary would receive the benefit.

Can a salary continuation plan use life insurance?

Life insurance is unique in that it can provide death benefits prior to retirement and tax deferred cash value accumulation for retirement income. In a non qualified salary continuation plan using life insurance, the company owns and is the beneficiary of the policy on the key executive’s life.

Can a salary continuation plan be taxed as ordinary income?

When deferred benefits are paid to the key executive or his beneficiaries, the company can deduct the amount of the benefit payments. All benefits of the salary continuation plan received by the employee or his or her beneficiaries are taxable as ordinary income. ¹ This information is for illustrative purposes only.

Can a salary continuation plan be written by KPI?

Written by KPI. Similar to non qualified deferred compensation plans, a salary continuation plan is designed to provide supplemental future benefits to selected key executives. These are often used to buffer existing benefits, or add new ones for key employees.