Salary Continuation

A salary continuation plan is an agreement between an employee and employer, whereby the employer agrees to continue the employee’s salary at retirement, death, or disability. The benefits are normally expressed in terms of a percentage of salary and length of service. It is usually done for key employees.

The ideal way to fund the plan is to purchase disability and life insurance policies on each employee involved in the plan. The employer applies for the insurance, pays for the premiums and is the beneficiary of the policy benefits. The employer can then address the policy benefits as they relate to each employee.

The advantages of such a plan are:

  • No IRS approval is required
  • Can be offered to one or more select employees
  • The plan helps recruit key employees
  • The plan can be discontinued at any time
  • They are easy to establish and administer
  • The employee does not have to report taxable income until the benefits are actually received
  • The employer can recover all costs of the plan through a properly designed program