The principals are interested in using business dollars to pay for personal life insurance. What's more, retirement planning and other accumulation goals are high priorities for the shareholders/employees. However, high costs and administrative difficulties make qualified retirement plans unattractive.

Solutions: The principals should consider one or more of the corporate-paid selective executive benefit plans available, including executive bonus, non-qualified supplemental executive retirement plans, split-dollar life insurance or group carve-out. A salary continuation (wage continuation) plan might also be considered to augment the group disability plan for the shareholder/employees.

Franklin Electronics' rank-and-file employees may need more life and disability income insurance than is being provided under the company's group term plan. What's more, some form of personal retirement savings arrangement should be considered in the absence of a qualified retirement plan.

Solutions: A voluntary payroll deduction plan offering participants a choice of life insurance, annuities and mutual funds would be an economical way for the company to enable employees (including the principals) to supplement group coverage with permanent insurance, as well as to establish long-term savings programs.

Employees should meet with an insurance agent to review their income protection needs and accumulation objectives to determine if additional life or disability insurance is indicated, as well as to establish long-term savings goals to meet college education, retirement and other financial objectives. In some cases, employees may be eligible to contribute to IRAs, and should consider doing so in the absence of other forms of qualified retirement savings arrangements.

Eventually, the corporation may wish to make a 401(k) plan (or some other form of qualified savings retirement arrangement) available to the employees.