The cheapest pension alternative for executives: Fixed Index Annuities

Historically, financial professionals have typically used cash value life insurance as funding vehicles for executive bonus programs.   Given current interest rates, and lack of liquidity in the marketplace and cash flow instability for middle market businesses, index annuities may serve as a more suitable replacement for life insurance.   Unlike life insurance, index annuities can be single funded, which doesn't require the executive or employer to commit to an annual premium nor worrying about the policy lapsing.  Furthermore, cash value life insurance such as fixed index universal life, whole life, or variable universal life contracts do not offer a lifetime income benefit.  Whereas fixed index annuities offer employees to have an "income benefit" growing at a guaranteed fixed rate of return for a certain period of time.

Consider this, most executives typically earn over 6 figures of earned income, and have other types of retirement assets such as 401K's, IRA's or brokerage accounts.   Using an employer's bonus to fund an index annuity essentially provides a lifetime guarantee income source, even if the contracted has been completely depleted from distributions to that key executive.   Furthermore, because it's considered a non qualified vehicle, it avoids ERISA guidelines and can be offered to key selected employees only. Last, there are favorable tax advantages where the annuity grows tax deferred.

In summary, pension plans may have too many challenges for companies, because of mandatory discriminatory testing rules and additional administrative expenses.   The alternative  cost effective solution for employers are fixed index annuities with guaranteed lifetime income riders.