Response: "No, it's not. But informally funding the plan with life insurance makes sense, since you won't have to pay for the future income benefit out of cash flow or surplus. We could arrange other types of funding, but there's no other way of making the right amount of money available when it's needed, and paying for it with discounted benefit dollars."

Objection: "Why can't we deduct these premiums as we do our pension contributions?"

Response: "These premiums are no more deductible than if you'd put the money in the bank. This arrangement is like taking dollars from one pocket and putting them in another. But, unlike your qualified retirement plan, this is a selective benefit plan. Because you don't have to cover the entire employee group, the death benefits are tax free when received by the corporation, and tax deductible when paid out to the beneficiary."

Objection: "If one of the participants leaves the company before retirement, what happens to the money in the plan?"

Response: "The participants are not vested, so you never lose control of the plan. If someone leaves, you have several options —
1) take the cash accumulations out of the policy and cancel the plan; 2) transfer the policy to another employee and continue the plan; 3) continue the policy on the former employee (you'd still be beneficiary); or 4) take the paid-up insurance, keep the plan in force and drop the premium payments."