1. Common key employee strategies – then and now
Recruit, reward, retain and retire
Presenter name
Presenter title
For financial professional use only. Not for distribution to the public.

2. Key employee retention and retirement
Who are your best sales prospects?
BB11233 shows who good sales prospects might be based on Principal® business market analysis of over 18,000 customers appended with Dunn & Bradstreet demographic data, January 2017.
[Review key factors (top industries, entity type, employee size, etc.) for each category:]
Employer paid retirement
Employee deferral retirement
Tax-exempt plans
For financial professional use only. Not for distribution to the public.
For financial professional use only. Not for distribution to the public.

3. Average premium/death benefit
Business market cases
Average premium/death benefit
Concept
Average premium/plan
Average premium/policy
Average death benefit/plan
Average death benefit/policy
 Business market overall
$12,517
$6,584
$2,691,283
 $1,415,669
Key person
insurance 
$9,190
$6,068
$2,528,828
$1,669,905
NQ supplemental retirement plans
$22,395
$8,272
 $1,658,200
 $612,543
Buy-sell/exit planning solutions
$10,448
$5,565
$3,338,365
 $1,778,065
As of February 2017 based on over 16,000 BMA plans under administration.
For financial professional use only. Not for distribution to the public.

4. Finding the right product for your client’s unique needs
It all starts with a good product. Finding the right product to fit your client’s unique needs is essential. We know one size doesn’t fit all, and we offer a variety of product to fund your client’s needs:
Term – Low-cost death benefit for a specified time period; short- to mid-term time horizon
Universal life with secondary guarantees – Guaranteed death benefit at a fixed price for a specified time period up to lifetime; mid- to long-term time horizon
Universal life – Flexible premium, guaranteed minimum rate, accumulates cash value based on fixed interest rate; mid- to long-term time horizon
Indexed universal life – Flexible premium, guaranteed minimum rate, accumulates cash value based on performance of index-linked accounts and/or fixed account; mid-to-long-term time horizon
Variable universal life – Flexible premium, non-guaranteed cash value from performance of underlying investment sub-accounts; mid- to long-term time horizon
Principal does not offer, but there’s also….whole life – level death benefit at a fixed price; guaranteed cash accumulation; long-term time horizon
Guarantees based on the claims-paying ability of the issuing insurance company.
For financial professional use only. Not for distribution to the public.

5. Why life insurance? Death benefit generally free from income tax
Cash value grows tax-deferred
Withdrawals can be made on a tax-advantaged basis*
Loans can generally be taken against the cash value without being subject to income taxation*
Life insurance is a tax-advantaged asset on your clients’ financial statements
Economic factors have created increased needs with business owners for tax-advantaged retirement income, business succession planning and income protection.
Protecting your business owner clients and their key employees helps protect your revenue stream against potential client insolvency and dissolution if a death occurred.
Fewer dedicated life insurance agents mean many clients needs may be going unaddressed.
*Withdrawals are generally tax-free until cost basis has been recovered. Thereafter, policy loans are generally tax-free unless the policy lapses. Withdrawals and loans will reduce the policy cash surrender value and net death benefit and may cause the policy to lapse. Lapse of a life policy may cause loss of death benefit and adverse income tax consequences. A life insurance policy classified as a modified endowment contract (MEC) will have less favorable tax treatment during the life of the insured compared to other life insurance (non-MEC policies). Such tax treatment would be similar to tax treatment of a deferred annuity.
For financial professional use only. Not for distribution to the public.

6. Principal Accelerated UnderwritingSM
Available for qualified individual and business applicants
Up to $1 million in coverage
Ages 18-60
Complete Part A and C of application, including Producer Report, HIPAA, Informed Consent Form, etc.
Schedule phone interview
No labs, no paramedic tests for the 45-55% of applicants who qualify*
Underwriting decisions in as little as 48 hours
Policy either issued or sent to full underwriting
[Consider handing out BB11647, the Accelerated Underwriting Guide.]
*Based on age, product, face amount and personal history.
For financial professional use only. Not for distribution to the public.

7. How to get started Use the Key Employee Benefits Fact Finder (BB9484)
Use decision grids to help determine plan design
Use the solution-specific request for proposal (RFP)
Submit the completed RFP to Advanced Solutions for a customized proposal for your client
But in order to narrow your decision down to a specific plan design, much of the decision-making generally takes place after the employer has answered a number of key questions. Generally, these tools will help you choose the best design based on your goals and objectives with regard to your key people. Let’s take a moment and talk through some of those decisions.
We have three items that we refer to as “decision grids”. These tools help us help you determine which of the prior designs would be the best fit for your situation.
They were created for use by entity type: Retirement – S corporations/LLCs (BB11383), Retirement – C corporations (BB11384), & Retirement – Tax-exempt (BB11385).
They each ask key questions to help guide you down which plan design will meet your top priority needs.
They walk you through the various design options based on your answers to the questions.
For financial professional use only. Not for distribution to the public.

8. Determining plan design
S corps/LLCs
C corps
Tax-exempt
BB11383
BB11384
BB11385
Businesses come in different shapes and sizes. Our platform is flexible and designed to address all the varying needs of your clients.
We offer solutions that are designed for both for-profit and tax-exempt organizations.
These decision grids can help guide the conversation with your client to possible solutions.
For financial professional use only. Not for distribution to the public.

9. Recruit, reward, retain and retire key employees
Business objectives:
Reward employees
Retain employees
Allow employees to more adequately save for retirement
Immediate vs. future tax deduction
Plan control
This information is from the Principal Financial Group® Replacement Ratio Calculator with source information from the Annual Statistical Supplements to the Social Security Bulletin ( It is intended to demonstrate the potential impact of Social Security and 401(k) plan benefits at various income levels. For more information on your individual circumstances, please speak with your financial or tax professional. ©2018 Principal Financial Services, Inc.
For financial professional use only. Not for distribution to the public.

10. Summary – key employee retention and retirement plans
Business considerations
Principal SERP SelectSM
Executive NQ Excess PlanSM & Defined Benefit Plan
Principal Executive Bonus PlusSM1
Principal® Select Reward Plan
Instant business tax deduction
No2
Yes
Golden handcuffs
Yes, but limited
Immediate taxation to employee
No, deferred until payout3
Yes, but “gross up” available4
Yes – low until termination5
Cost recovery for business
Yes6 No
Administrative support
Cost of administrative services
Primary focus for key employees
Recruit, reward, retain, retire
Reward, retain
Employer contributions
Employee contributions
Yes (Excess)
No (Def. Ben.)
Yes (after tax)
Limit on number of participants
Yes (1-5)
Summary – key employee retention and retirement plans
1 Principal S Owner Plus and Principal LLC Bonus are plan options designed specifically for owners of flow-through entities.
2 The company receives a tax deduction only when the benefit is paid.
3 The employee is only taxed when the benefit is distributed.
4 The employer may bonus some or all of the tax costs to the participant to mirror a pre-tax benefit.
5 The employee must pay economic benefit cost on the amount of death benefit endorsed to him or her.
6 The employer may obtain a measure of cost recovery from life insurance used to informally finance the plan.
We’ve discussed several different types of key employee retirement plans as well as many plan designs under each. This chart provides a quick comparison of some of the key features, which can help lead clients to the right plan design to meet their individual goals.
Review slide.
Footnotes:
1 Principal S Owner Plus and Principal LLC Bonus are plan options designed specifically for owners of flow-through entities.
2 The company receives a tax deduction only when the benefit is paid.
3 The employee is only taxed when the benefit is distributed.
4 The employer may bonus some or all of the tax costs to the participant to mirror a pre-tax benefit.
5 The employee must pay economic benefit cost on the amount of death benefit endorsed to him or her.
6 The Employer may obtain a measure of cost recovery from life insurance used to informally finance the plan.
For financial professional use only. Not for distribution to the public.

11. Tax Cuts and Jobs Act
Impact to key employee retention and retirement plans
For financial professional use only. Not for distribution to the public.

12. Summary – 2017 federal tax rates
Income
tax rates1
Married filing jointly
Single2
10%
$0 to $18,650
$0 to $9,325
15%
$18,651 to $75,900
$9,326 to $37,950
25%
$75,901 to $153,100
$37,951 to $91,900
28%
$153,101 to $233,350
$91,901 to $191,650
33%
$233,351 to $416,700
$191,651 to $416,700
35%
$416,701 to $470,700
$416,701 to $418,400
39.6%
Over $470,700
Over $418,400
1 These rates are imposed on taxable income, meaning income remaining after applicable exclusions, deductions and exemptions are claimed. Note that each rate applies only to the income falling within that bracket.
2 Single taxpayers are unmarried individuals other than surviving spouses and heads of households.
For financial professional use only. Not for distribution to the public.

13. Summary – 2018 federal tax rates
Income
tax rates1, 2
Single3
10%
$0 to $9,525
10% of the taxable income
12%
$9,526 to $38,700
$ plus 12% of the excess over $9,525
22%
$38,701 to $82,500
$4, plus 22% of the excess over $38,700
24%
$82,501 to $157,500
$14, plus 24% of the excess over $82,500
32%
$157,501 to $200,000
$32, plus 32% of the excess over $157,500
35%
$200,001 to $500,000
$45, plus 35% of the excess over $200,000
37%
Over $500,000
$150, plus 37% of the excess over $500,000
Income
tax rates1, 2
Married filing jointly
10%
$0 to $19,050
10% of the taxable income
12%
$19,051 to $77,400
$1,905 plus 12% of the excess over $19,050
22%
$77,401 to $165,000
$8,907 plus 22% of the excess over $77,400
24%
$165,001 to $315,000
$28,179 plus 24% of the excess over $165,000
32%
$315,001 to $400,000
$64,179 plus 32% of the excess over $315,000
35%
$400,001 to $600,000
$91,379 plus 35% of the excess over $400,000
37%
Over $600,000
$161,379 plus 37% of the excess over $600,000
1 Change will sunset after 2025 and revert to its 2017 numbers, adjusted for inflation.
2 These rates are imposed on taxable income, meaning income remaining after applicable exclusions, deductions and exemptions are claimed. Note that each rate applies only to income falling within that bracket.
3 Unmarried individuals who are not surviving spouses or heads of household.
For financial professional use only. Not for distribution to the public.

14. Comparison of individual federal tax rates
2017
2018
Tax rate
Married filing jointly
10%
$0 - $18,650
Up to $19,050
15%
$18,651 - $75,900
12%
$19,051 - $77,400
25%
$75,901 - $153,100
22%
$77,401 - $165,000
28%
$153,101 - $233,350
24%
$165,001 - $315,000
33%
$233,351 - $416,700
32%
$315,001 - $400,000
35%
$416,701 - $470,700
$400,001 - $600,000
39.6%
Over $470,700
37%
Over $600,000
For financial professional use only. Not for distribution to the public.

15. Comparison of 2017 and 2018 corporate tax provisions
2017 Law
New Law
Analysis
Income taxation of C corporations
IRC Section 11(b)
C corporations were subject to graduated rates as follows:
$0 - $50K %
$50K - $75K 25%
$75K - $10M 34%
Over $10M %
All C corporations (including personal service corporations) are subject to a flat income tax rate of 21%, for tax years beginning after December 31, 2017.
C corporation owners are subject to taxation both at the entity level and the individual level. The 21% flat tax rate has no scheduled expiration date.
For financial professional use only. Not for distribution to the public.

16. A case study Assumptions
Key employee married, filing jointly; income = $200,000
C corporation - highest corporate tax rate
Company wishes to contribute $50,000 to a plan to age 65
State income tax not factored in – Use caution as state taxes can have significant impact
2017
35% employer federal tax rate
28% employee federal tax rate
2018
21% employer federal tax rate
24% employee federal tax rate
For financial professional use only. Not for distribution to the public.

17. Principal Executive Bonus Plus
Recruit/retain/reward/retire
Employee-owned
Current company tax deduction
Current employee income
Optional restrictive/employment agreements
Plan features
Employee needs to be able to qualify for life insurance
Supplemental tax-advantaged retirement income for employee
Tax-free death benefit for employee
For financial professional use only. Not for distribution to the public.

18. Executive Bonus Plan – how it works
We also offer executive bonus plans (for profit and tax-exempt organizations).
These plans offer the opportunity for organizations to recruit, reward, retain and retire key employees.
Bonus plans allow selected employees the opportunity to contribute income - or take withdrawals - on an after-tax basis above the limits on their qualified plans. They also allow employers the opportunity to match employees' contributions and help them meet their retirement goals.
How it Works
Accumulation Phase:
1. Bonus from employer to key employee can be tax-deductible, subject to reasonable compensation restrictions.
2. Bonus dollars are used to purchase an asset like a life insurance policy. Key employee is taxed on the bonus as ordinary income.
Distribution Phase:
3. Upon distribution, the key employee uses the financial asset values to supplement retirement income or provide survivor benefits.
For financial professional use only. Not for distribution to the public.

19. Executive Bonus sample - 2017
Hypothetical example to show cost and benefit analysis only using 2017 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

20. Executive Bonus sample - 2018
Hypothetical example to show cost and benefit analysis only using 2018 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

21. Key points – bonus plans
For the company
With a strong job market, simple and effective retention plans become increasingly important
Lower overall tax burden for company makes more funding available for executive benefits
Company out-of-pocket cost is less when using double bonus design due to employee lower tax rates
“Simulated deferral” bonus plan design may have broader appeal
For the employee
Less taxes are due on the bonus than in previous years
Valuable retirement tax diversification available based on product choice
Tax-deferred growth, tax-advantaged distributions and tax-free death benefit make life insurance an effective funding choice
Many employees may pay lower tax rates on income today than after 2025 (due to scheduled sunset)
For financial professional use only. Not for distribution to the public.

22. Principal Select Reward Plan
Recruit/retain/reward/retire
Employer-owned and controlled
Deferred compensation plan (for “Top Hat” employees)
Future tax deduction for the company
Future income taxation to employee when lump sum bonus is received
Giving your key employees a big reason to stay
Plan features
Employee needs to be able to qualify for life insurance
Timing of the lump sum bonus can be beneficial (e.g. succession planning, paying off student loans, etc.)
Potential for tax-advantaged retirement income for employee
Tax-free death benefit for company (and employee, if endorsement split dollar is used)
Potential for tax-advantaged retirement income for employee relies on plan design – assuming a change of ownership in the policy when lump-sum bonus is paid out. Then, remaining policies values are available tax-advantaged to the employee.
For financial professional use only. Not for distribution to the public.

23. Select Reward Plan – how it works
For profit & tax-exempt organizations
Read from slide to explain how concept works.
The owner and key employee enter into an agreement stating the length of time before the bonus will be paid.
Then, during the service period:
The company purchases a life insurance policy that builds cash value. The key employee is the insured and the company owns the policy and pays the premium.
An endorsement split dollar agreement can be set up between the company and the key employee. So if the key employee dies before the end of the service period, the life policy will provide a death benefit that’s split between the company and the key employee’s survivors.
The employee pays tax annually on the value of the life insurance protection.
Then, in the payout period:
The owner ensures that the life policy has accumulated enough cash value to pay the lump-sum bonus to the key employee at the end of the service period.
The bonus consists of either a withdrawal of cash value from the life policy – or ownership of the policy can be transferred to the key employee to meet the bonus requirement.
The key employee owes income tax on the bonus amount in the year the bonus is paid – or ownership of the policy is transferred.
For financial professional use only. Not for distribution to the public.

24. Select Reward
sample
Hypothetical example to show employer cash flow and assets only using 2017 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

25. Select Reward
sample
Hypothetical example to show employer cash flow and assets only using 2018 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

26. Key points – Select Reward Plan
For the company
Lower overall tax burden for company makes more funding available for executive benefits
Key person insurance & cost recovery for company may be available
Elimination of corporate alternative minimum tax (AMT) makes life insurance more appealing
For the employee
Employee will be taxed at the income tax rates in effect when the benefit is received, which may be different than current rates
Assuming life insurance ownership is transferred to key employee, taxes are paid on lump sum, then tax-deferred growth, tax-advantaged distributions and tax-free death benefit remain unchanged, and make life insurance a effective funding choice
For financial professional use only. Not for distribution to the public.

27. Principal SERP Select Recruit/retain/reward/retire Plan features
Employer-owned and controlled
Deferred compensation plan (for “Top Hat” employees)
Limited to 1-5 select employees
Future tax deduction for the company
Future income taxation to employee when lump sum bonus is received
Plan features
Employee needs to be able to qualify for life insurance
Potential cost recovery for business
Potential supplemental retirement income for employee
Tax-free death benefit for company (and employee, if endorsement split dollar is used)
For financial professional use only. Not for distribution to the public.

28. SERP Select– how it works
For profit organizations
Principal SERP Select is a simple, yet flexible defined contribution plan designed to help growing businesses recruit, reward and retain top talent by offering key employees a nonqualified supplemental retirement income benefit. This plan offers benefits for both businesses and C corporation owners. It’s designed for companies wanting to benefit one to five key employees and is informally financed with employer contributions and includes complimentary administrative services from Principal® making it cost-effective for the growing business market.
Designed for:
C corporations (owners and key employees)
S corporations, limited liability companies (LLCs) or partnerships (key employees only)
Businesses with strong continuity in place
Financially stable businesses (profitable, good cash flow, long history)
Owners wanting to benefit one to five key employees
Annual contributions of $25,000 - $150,000
This plan is NOT designed for:
Not-for-profit organizations
Owners of S corporations, LLCs or partnerships
Larger cases or situations where the employer is looking for greater flexibility in case design and more robust administrative services
A defined contribution, deferred compensation agreement is established between the business and the key employees selected by the employer. Read from slide to explain how concept works and what happens during the service and payout periods.
For financial professional use only. Not for distribution to the public.

29. SERP Select
sample
Hypothetical example to show employer cash flow and assets only using 2017 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

30. SERP Select
sample
Hypothetical example to show employer cash flow and assets only using 2018 current values. It is not intended to show the complete illustration, which provides more data.
For financial professional use only. Not for distribution to the public.

31. Key points – SERP Select
For the Company
Lower overall tax burden for company makes more funding available for executive benefits
Key person insurance & cost recovery for company may be available
Elimination of corporate alternative minimum tax (AMT) makes life insurance more appealing
For the Employee
Employee will be taxed at the income tax rates in effect when the benefit is received, which may be different than current rates
For financial professional use only. Not for distribution to the public.

32. For an S corporation owner
For financial professional use only. Not for distribution to the public.

33. Determining plan design for the S corporation owner
Businesses come in different shapes and sizes. Our platform is flexible and designed to address all the varying needs of your clients.
We offer solutions that are designed for both for-profit and tax-exempt organizations.
These decision grids can help guide the conversation with your client to possible solutions.
BB11383
For financial professional use only. Not for distribution to the public.

34. Principal S Owner PlusSM – how it works
The Principal S Owner Plus plan is designed for owners of S corporations.
It can provide death benefit protection and help the owner save more for retirement.
And it can provide tax leverage without contribution limits and restrictions on compensation. The tax leverage comes with using life insurance to finance the plan rather than it being based on a tax code provision.
How it Works
Accumulation Phase:
1. The S Owner makes contributions to the plan (choice of compensation or K-1 distribution).
Distribution Phase:
2. Upon distribution, the owner uses the financial asset values to supplement retirement income or provide survivor benefits.
For financial professional use only. Not for distribution to the public.

35. Principal S Owner Plus – for owners
Benefits
Considerations
Save more – Limits on compensation and contributions don’t apply.
Choose from contribution options – Take income as compensation or a K-1 distribution, allowing some payroll tax leverage.
Pay out distributions properly – If there’s more than one owner, and K-1 distributions are used, distributions need to be in proportion to ownership.
Pay income tax now – Whether profits are distributed or retained for business expansion, the owner(s) are taxed at current ordinary income tax rates.
Need to be healthy – Must be able to qualify for life insurance.
There are many advantages to this plan, just as there are some things to consider.
Save more – While qualified plans and Roth IRAs offer tax benefits, they have limits on compensation and contributions that don’t apply to the S Owner Plus plan. (Note: Contributions must meet reasonable compensation guidelines.)
Choose from contribution options – S Owners can choose to take income as compensation or a K-1 distribution, allowing some payroll tax leverage.
Pays out distributions properly – If there’s more than one owner, and K-1 distributions are used, distributions need to be in proportion to ownership.
Pays income tax now – Whether profits are distributed or retained for business expansion, the owner(s) are taxed at current ordinary income tax rates.
Need to be healthy – Owners must be able to qualify for life insurance if they choose to use it for financing the plan.
Note: If the owner(s) is unable to qualify for life insurance, other options for financing the plan are available. But these options will have different tax implications regarding accumulation and distribution.
For financial professional use only. Not for distribution to the public.

36. Key points – Bonus for owner
Because of the proposed sunset provisions (after 2025) the tax timing is ideal for plans set up within the next eight years.
Owners of pass-through entities may benefit from a 20% deduction on “qualified business income” subject to limitations and phase-outs. Reasonable compensation paid to owners and certain income from specified services businesses are excluded from “qualified business income”.
Consult with tax professionals – The qualified business income deduction is more limited for businesses that provide services in the fields of health, law, accounting, actuarial sciences, performing arts, consulting, and athletics, as well as financial services companies and others Note: Engineering and architectural businesses are specifically excluded from this limitation.
Tax-deferred growth, tax-advantaged distributions and tax-free death benefit make life insurance an effective funding choice.
For financial professional use only. Not for distribution to the public.

37. Supporting you every step of the way
Business Market Administration
Supporting you every step of the way
Deciding on
A solution
Plan services keep clients coming back, and keeps you free to focus on building sales
We regard our business insurance solutions as complete plans – not just individual policies.  And the services you and your clients receive reflect this approach.
Dedicated BMA administrator will be assigned to provide personalized service and support.
Determining a solution: Working in tandem with our Advanced Solutions team (which is staffed with attorneys, CPAs, and plan design specialists), BMA can assist with case design and billing consultation.
Plan implementation/new enrollments: BMA can assist with assembling appropriate submission forms based on the selected plan design.
Online access: Employer-sponsors may view the following online: News & Info, Life Premium Information, Life Policy Information, Life Policy Values, Specific Policy Details (only when policies are corporate-owned) With corporate-owned variable life insurance, the employer may also request policy changes online, such as division transfers, allocation percentage changes for future premiums, etc. Insured-participants may view their respective policy information online when policies are individually-owned. And with variable life insurance, they may also request policy changes online, such as division transfers, allocation percentage changes, etc.
List billing – Principal sends consolidated payment reminders covering all policies under the plan.  This enables the employer-sponsor to pay policy premiums via a single check.  Annual, semi-annual, quarterly, and monthly payment modes available.
Ongoing policy administration and service – The BMA administrator is able to assist with any policy adjustment questions, service requests, illustration needs, etc. 
Annual plan-level reporting – Summary Annual Reports mailed directly to employer-sponsors.
Plan status and strategy review – Upon request, BMA administrator can assist producer with reviewing policy status relative to the client’s goals.
View our BMA Services Flyer (BB9441)
For financial professional use only. Not for distribution to the public.

38. Questions?
[ Optional: If time allows, you can offer Q&A at the end of the session. ]
Are there any questions I can address for you before we go?
For financial professional use only. Not for distribution to the public.

39. Let’s connect
Contact your wholesaler or sales representative, or call Advanced Solutions at
Visit us at advisors.principal.com.
For financial professional use only. Not for distribution to the public.

40. Principal National Life Insurance Company and Principal Life Insurance Company, Des Moines, Iowa
Insurance issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co. Securities offered through Principal Securities, Inc., , Member SIPC, and/or independent broker/dealers. Principal National, Principal Life and Principal Securities are members of the Principal Financial Group®, Des Moines, IA
No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group®.
Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
We are not attorneys nor practicing CPAs, and we encourage you to consult your legal and accounting professionals to determine whether any of the ideas presented here would be suitable for your company.
<Leave on screen long enough for people to read.>
BB12114 | 01/2018 | | © 2018 Principal Financial Services, Inc.