Although no prior IRS-approval is needed, the IRS and the tax courts have established several requirements for setting up tax-favored, non-qualified salary continuation plans. Specifically, a formal plan must be adopted by the employer. Moreover, the plan:
- must be put into effect before any disability begins;
- must be communicated to all participants in writing;
- may cover one or more employees, and the employer may establish different plans for different classes of employees;
- may be insured or non-insured;
- must provide benefits that are reasonable in relation to services performed by the employee;
- must be created by resolution by the company's Board of Directors.
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