Loan split dollar remains one of those advanced market strategies that engenders two distinct reactions among financial professionals. One reaction sees nearly unlimited opportunity in the executive business market, while another relegates this concept to the esoteric and inapplicable. Though the latter reaction may be natural for those still stuck in an early 2000s mindset, today’s financial professionals would be remiss if they didn’t seize this impactful strategy and place it in their executive benefit toolkit.

The particulars of this technique (sometimes called collateral assignment split dollar) are beyond the constraints of this piece, but a synopsis of the “Why” behind loan split dollar will help to explain the rationale and provide a brief review of this executive benefit strategy.

Retaining and rewarding key employees can be difficult under the best of circumstances.

Recent economic events have only amplified this dilemma for business owners. Companies have traditionally reacted to this in two ways:

• Either bonus additional compensation to a key employee, or
• Institute a full-fledged non-qualified deferred compensation arrangement.

Each has its own merits. The bonus arrangement provides an immediate tax deduction but offers the employer little control. It can also add further to the tax burden of an overtaxed key employee. Alternatively, the deferred compensation strategy can layer in unnecessary cost and complication for the employer although it provides significant control.

Loan split dollar may offer an approach that is the best of both worlds. The cost and complexity of deferred compensation arrangement can be avoided while retaining a measure of control through cost reimbursement. Furthermore, some of the simplicity and flexibility of a bonus arrangement can be maintained.

How does it work?
In this concept, a key executive will own a life insurance contract and collaterally assign policy values to the employer to secure repayment of an employer’s premium advances. Because the employee already owns the contract, and is obligated to repay the employer, these premium advances are treated as nontaxable loans. Furthermore, any remaining equity built up remains untaxed. Of course the executive is subject to the normal distribution tax rules for a personally held life insurance policy.

As each premium payment is treated as a separate loan, the interest must be accounted for. This interest must be treated as imputed income or the employee must pay an adequate rate of interest using the appropriate applicable federal rate (AFR), published regularly by the government.

This alone can be a reason to hit the “go button” on this impactful executive benefit. However, it’s just the tip of the iceberg.

Part of the loan split dollar renaissance story now involves tax-leveraged strategies for owners of C Corporations seeking to separate their personal wealth from their business wealth. In addition, changes in the tax code courtesy of the 2017 Tax Cuts & Jobs Act, incentivize certain applicable tax-exempt organizations to provide loan split dollar to top employees. By doing so, these same organizations may avoid a 21% excise tax for compensation paid to highly compensated employees earning over $1 million. This presents a large opportunity for institutions employing doctors, hospital administrators, coaches, and athletic directors.

Loan split dollar may be the perfect fit for the hard-to-please business owner seeking that ideal executive benefit for their top talent. Adding loan split dollar to your toolkit may place you in the driver’s seat in front of your highest value clients.

Learn more about loan split dollar through Midland National’s comprehensive agent and client materials.

Author: Andrew Rinn, JD, CFP, CLU, ChFC, is the Assistant Vice President of Advanced Strategies at Sammons Financial Group. He also serves on NAIFA's Board of Trustees.

1864MM-1 FOR AGENT USE ONLY. NOT TO BE USED FOR CONSUMER SOLICITATION PURPOSES. 3-25

The parties to the loan split dollar arrangement should seek their own independent legal and tax advice as to whether and how to enter into a loan split dollar arrangement based on the employer’s and employee’s unique circumstances.

Under a loan split dollar agreement, the employee enters into an agreement with the employer. Midland National Life Insurance Company is not a party to this agreement and Midland National’s only obligation is to administer the policy it issues (consistent with the policy’s terms and conditions).

Under a split dollar agreement, classified as a welfare benefit plan, the employee must belong to a select group of management, which includes quantitative and qualitative elements. To meet the quantitative standard, plans should be limited to the top 15% of the workforce. To meet the qualitative test, a significant disparity should exist between the average compensation of the top-hat group and the average compensation of all other employees."

To ensure the death benefit proceeds of any employer-owned policy retains its tax-favored treatment, it is essential to comply with the notice and consent requirements of IRC Section 101(j).Under a loan split dollar agreement, the employee enters into an agreement with the employer. Midland National® Life Insurance Company is not a party to this agreement and Midland National’s only obligation is to administer the policy it issues (consistent with the policy’s terms and conditions).

While the primary use of life insurance is death benefit protection, your clients may also have other needs that can be met through life insurance. The sales concepts and accompanying marketing materials may help you broaden your sales potential. As independent contractors, it is up to you to choose which of these concepts may work for your particular sales strategy and clients, and which do not. Please note that Midland National does not require you to use any of these sales concepts; they are resources that can be used at your discretion for your own individualized sales presentations.

Sammons Financial® is the marketing name for Sammons® Financial Group, Inc.’s member companies, including Midland National® Life Insurance Company. Annuities and life insurance are issued by, and product guarantees are solely the responsibility of, Midland National Life Insurance Company.

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NAIFA-Columbus hosted a membership breakfast meeting at the OSU Fawcett Center on Wednesday, August 21st, 2024 with guest speakers Julia Bowling, Shawn Phelps, and Scott Eickelberger. 

Julia Bowling with Sedgwick provided a brief overview of the Workers Compensation Group Rating Program. Group rating is a pooling program enabling state-funded employers with better than average claim histories to combine claim expenses and rate calculations to take advantage of premium savings currently reserved for larger employers.

Julia has 25 years in the workers’ compensation industry and the entirety with Sedgwick. She is a Business Development Manager where she assists Ohio employers and trade organizations unpack the complexities of risk management, workers’ compensation, and most specifically the Group Rating Program.

Shawn Phelps and Scott Eickelberger jointly discussed “Estate Planning and Tax Changes for 2025”. Use it or Lose it! The Tax Cuts and Jobs Act (TCJA) of 2017 significantly changed the federal estate and gift tax system.

Shawn Phelps, MBA is the Founder and Private Wealth Advisor of River Tree Wealth Management, a member of Northwestern Mutual’s exclusive Private Client Group based in Columbus. The firm specializes in investment planning, estate planning & trust services, and business planning & succession.

Shawn is an accomplished advisor, trainer, and business strategist with over 20 years of experience in financial services and business management. With a passion for helping individuals, families, and organizations reach their full potential, Shawn has dedicated his career to providing practical solutions and insights to help people plan for adversity, prioritize financial wellness, and create financial legacies, all while having fun!

Scott Eickelberger is a partner with Kincaid, Taylor & Geyer where he has been primarily involved in all aspects of estate planning, estate administration and real estate matters. This includes the drafting of Wills, various types of Trusts and Powers of Attorney. Scott handles commercial and complex litigation primarily revolving around real estate and will and trust disputes. 

Scott has been the Solicitor for the Village of New Concord, Ohio since 1992 and has served as the President of both the Muskingum County, Ohio and Perry County, Ohio Bar Associations. Scott is a member of the American Land Title Association, the American Bar Association, the Ohio State Bar Association and the Muskingum and Perry County Bar Associations.

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April is National Financial Literacy Month, an annual observation NAIFA wholeheartedly agrees with. But why is financial literacy important and what are we doing about it?

FINRA surveys consistently show that around two-thirds of Americans lack basic financial understanding, and their lack of knowledge is significant. Those who score higher on FINRA’s financial literacy quiz show a greater tendency to earn more than they spend, have an emergency fund of three-months’ salary or more, contribute to retirement accounts, and accurately estimate their retirement savings needs.

In addition, consumers who are more financially literate are better equipped to manage their debt and avoid high-interest loans, more likely to save and invest effectively, and more likely to manage financial risks and cope well with unexpected financial challenges and emergencies.

NAIFA Supports Financial Literacy

During April and throughout the year, NAIFA promotes financial literacy. Life Happens, NAIFA’s consumer outreach arm, created and coordinates important consumer outreach campaigns, like Insure Your Love Month, Disability Insurance Awareness Month, and Life Insurance Awareness Month. Life Happens provides financial professionals with tools and resources to educate consumers. During National Financial Awareness Month, Life Happens is creating a social media toolkit of posts and graphics that will soon be available to NAIFA members.

Financial professionals play an important role in improving financial literacy among their clients and in their communities. They often go well beyond providing products, services, and guidance, and empower those they work with to understand things like budgeting, saving, investing, borrowing, debt management, retirement planning, and risk protection. Many NAIFA members volunteer in their broader communities, working with schools, churches, libraries, local governments, civic groups, or business organizations to provide financial literacy education. Understanding among consumers leads to better decision making and improved financial security. We highlight NAIFA members’ good work in the Advisor Today blog, on our social media accounts, and in the Advisor Today Podcast series.

Advocating for Financial Literacy

NAIFA chapters have leveraged their political grassroots influence to encourage state laws adding personal finance courses to high school graduation requirements. Students are required to have basic proficiencies in math, English, science, and other subjects. Doesn’t it make sense that they should graduate with some understanding of financial matters? Not only does this provide them a base of knowledge as they face the prospects of making their own personal finance decisions, but it also could build enthusiasm and encourage some to pursue insurance and financial services as a career.

In 2023, Alabama, Connecticut, Idaho, Indiana, Louisiana, Minnesota, Montana, Oregon, West Virginia, and Wisconsin passed measures to require public high school students to take a one-credit course in financial literacy before graduating. To date, 25 states have passed similar measures.

At the federal level, NAIFA members continue urging lawmakers to join the Congressional Financial Literacy and Wealth Creation Caucus co-chaired by Reps. Young Kim (R-CA) and Joyce Beatty (D-OH). The Financial Literacy and Wealth Creation Caucus aims to equip Americans with the skills and resources they need for economic stability, wealth-building, and prosperity.

Educated consumers are more financially secure, promote the robustness of the U.S. economy, and provide a market for important insurance and financial products and services. It’s hard to overstate the importance of financial literacy this month and every month.

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Have you ever wondered if great leaders are born or made? Anyone can be a great leader if they understand themselves, know what motivates others to want to follow them, and apply what they learn.

John C. Maxwell said it best, “A leader is one who knows the way, goes the way, and shows the way.”

Do you know how to get your message across and have others want to follow you?

Let’s look at six leadership styles so you can better understand your style and how to motivate others better.

Leadership Style #1: Commanding Leadership

The Commanding Leadership style, one of the most aggressive of the six leadership styles, expects and demands immediate compliance to their orders. They have a style that accomplishes tasks by ordering and dictating to people. A good example of this style is a drill sergeant!

The Commanding Leader lives by the motto: “Do what I tell you!”

This style works best when team members lack skill or expertise. For example, a rookie needs direction on what to do and how to do it.

Leadership Style #2: Visionary Leadership

The Visionary Leadership style is a leader who has a vision and wants the team to help make it a reality. These leaders clearly understand what direction the company needs to move towards because they have a clearly defined vision and can explain what it will take to make it happen. An example of this style is how Elon Musk leads his company.

The Visionary Leader lives by the motto: “Come with me!” 

This style works best when an organization is adrift because it creates a new vision and direction. Typically, it should be used when a company needs significant change or when team members are willing to follow someone into an unknown future.

Leadership Style #3: Affiliate Leadership

The Affiliate Leadership style focuses on building relationships. They want to create harmony within the team, leading to a more productive workplace. Affiliate leaders provide constructive feedback to team members. An example would be the boss who buys a birthday cake for each team member on their birthday to show that they care.

The Affiliate Leader lives by the motto, “People come first.”

This style best works when a team is in crisis, or a new team is being created. This style allows you to be effective when building team connections, improving communication, increasing morale, and repairing broken trust.

Leadership Style #4: Democratic Leadership

The Democratic Leadership style encourages team members to participate in the decision-making process because it welcomes ideas. This style is helpful in teams where members are highly skilled because encouraging team members leads to increased creativity and new ideas. An example is a branch manager who has never been in production but has an experienced office of advisors whom they trust.

The Democratic Leader lives the motto, “What do you think?”

This style works best when you, as the leader, are unsure about the direction to take because it encourages creativity and innovation. As a result, employees take ownership of their ideas.

 Leadership Style #5: Pacesetting Leadership

 The Pacesetting Leadership style leads by example. In other words, they set the pace. An example is the top producer in the office who becomes the producing branch manager and is still the top producer or the senior advisor on a team who always seems to close prospects.

 The Pacesetting Leader lives by the motto, “Do as I do!”

 This style works best when you need fast results from a motivated team, such as running a cross-selling campaign to set appointments with clients to do a life insurance review!

 Leadership Style #6: Coaching Leadership

 The Coaching Leadership style motivates team members who enjoy being a part of a group. Team members receive clear expectations, which creates skilled, productive individuals who can go on to coach others. An example is the branch manager who has the third-year rookie coaching the brand new rookies on how to handle objections.

The Coaching Leader lives by the motto, “Try this!”

This style works best when the leader identifies the strengths and weaknesses of each team member and then provides guidance so team members can improve and eventually teach others.

Why Learning Your Leadership Style Works

The reason why learning your leadership style works is that some styles work better depending on a specific situation. When you understand what leadership style to use and when you inevitably help others want to follow you.

In Advisor Solutions Podcast Episode #91, Learning Your Leadership Style, you will find a much more detailed description of each style, the pros and cons of each, and when to apply them. And, as a result, it will help you to become a better leader!

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The Department of Labor thinks it knows what's best for Americans preparing for retirement. NAIFA President Bryon Holz, CLU, ChFC, LUTCF, CASL, LACP, and his long-time client Chuck Ross think the DOL is wrong and bring their real-life experience to the argument.

Bryon and Chuck offered a unique perspective when they testified at a DOL public hearing that the Department's latest fiduciary proposal will harm consumers. Unlike any of the other witnesses, Bryon and Chuck have been working together for decades as advisor and client.

Their real-world experience – Bryon was already a seasoned professional when the DOL first imposed its fiduciary rule in 2016 and he saw its impact firsthand – brought authentic voices to the DOL proceeding and complimented the testimony of industry lobbyists.

Real-World Impact

Bryon testified that consumers are best served when they can choose how and from whom they receive financial services. The current DOL proposal would force many advisors to move to a fee-for-service model tailored to higher-income clients. It ignores that some clients are better served by existing models.

Chuck offered his own case as an example. When he began preparing for retirement, he had limited assets and very likely would not have been able to work with Bryon had the DOL proposal been in place.

"By moving forward with this Proposed Rule, the Department is ignoring the negative impact this rule will have on lower- and middle-income savers and the real-world experience that NAIFA members saw firsthand before the 2016 Fiduciary Rule was vacated," Holz testified.

NAIFA, along with the American Council of Life Insurers, initiated a lawsuit challenging the earlier DOL fiduciary rule. A federal appeals court in 2018 vacated that rule. The DOL's current proposal shares many of the flaws of its predecessor.

NAIFA members develop relationships with clients based on trust and results. Even Timothy D. Hauser, the Deputy Assistant Secretary for Program Operations of the DOL's Employee Benefits Security Administration (EBSA), acknowledged the impact of Bryon and Chuck's testimony. "It's one thing for people in the business to testify but it's another for one of your clients to step forward. Thank you."

A Fight We Have to Win

With so much at stake, NAIFA strongly urges the DOL to withdraw its recycled rule. We are working with members of Congress on both sides of the aisle and urging their opposition, as well. We will continue to oppose the DOL proposal and explore all options to preserve consumers' ability to choose from a variety of financial service models.

There are things you can do to help:

•  Take Action at NAIFA's Legislative Action Center by sending a letter opposed to the DOL proposal to your members of Congress.
• Be sure to keep your NAIFA membership up-to-date. If you have a year-end renewal date, don't let it lapse. Renew today!
• Encourage your colleagues who are not NAIFA members to join us. The greater our numbers, the louder our advocacy voice grows. Given the current DOL threat, we need all financial professionals to be a part of our efforts.
• Mark your calendar for NAIFA's Congressional Conference, May 20-21, and sign up to get an update when registration opens.

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NAIFA’s Board of Trustees and the Board of Directors of the Society of Financial Service Professionals have both voted unanimously to approve a merger agreement between the two associations. The votes come after the membership of NAIFA and FSP both voted overwhelmingly in favor of the merger earlier this year.

Three officers from the FSP Board and one from Life Happens, which also has joined the NAIFA enterprise, will serve on NAIFA's 2024 Board of Trustees.

With the mission of “Empowering financial professionals and consumers through world-class advocacy and education,” the unified organization will be known as NAIFA but will encompass a robust professional development wing led by and branded as FSP. 

Members of the combined association will benefit from a broad member benefits portfolio. Resources concerning the merger and how it benefits members are available on NAIFA’s website.

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November is National Long-Term Care Awareness Month and it is a great time to bring potential limited and extended care planning needs top-of-mind with your clients. It is important for every comprehensive financial plan to include LTC considerations. So even if LTC insurance is not your primary line of business, Long-Term Care Awareness Month gives you a good opportunity to get clients up to speed.

Fortunately, NAIFA's Limited & Extended Care Planning Center (LECP) offers expert connections and resources on a variety of LTC planning options you can discuss with your clients. LECP kicked off the month early with a special Halloween event, "Don't Be Scared of Long-Term Care." The recorded presentations and presentation slide decks from the event are now available on demand.

Learn from some of the best in the business on a variety of important topics. 

• Tom Riekse, Managing Director, LTCI Partners - "Don't Be Afraid of Too Many Choices! Why the Many LCT Insurance Options Are Great for Financial Security Professionals and Their Clients."
• Jamie Sarno, Vice President of Medicare Supplement & Specialty Health Products, Amerilife - "Resurrecting the Sale"
• Chalen Jackson, Key Accounts Specialist, Senior Marketing Specialists - "Help Your Clients Avoid Skilled Nursing Purgatory - Mitigating Medicare Coverage Gaps"
• Patrick Cahill, CRPC, RICP, Head of Strategic Accounts, Coventry - "The Secondary Market for Life Insurance: Uncovering the Hidden Value"
• Tim Vannoy, CLU, ChFC, CFP, Regional Account Director, Care Solutions, OneAmerica - "Don't Be Scared of Hybrids"
• Corey Anderson, DIA, President and Founder, DI Geek - "The DI Geek: Don't Be Scared of Disability Insurance"
• Kevin Sypniewski, President and CEO of AGIS Network - "Large Employer Worksite: Traditional LTC... Dead or Alive?"
• Cindy Harris, Director of Sales, LifeSecure - "Get Into the Spirit and Talk LTC With Your Clients"
• Thomas Krause, J.D., Vice President of Sales and Marketing, The Krause Agency - "Leveraging Medicaid-Compliant Annuities in Crisis Long-Term Care Planning"

Another great resource is LECP Executive Director Carroll Golden, CLU, ChFC, LTCP, CASL, FLMI, CLTC, LACP. Her latest book, How Not to Tear Your Family Apart: A Practical Guide to Caregiving and Financial Stability, an Amazon bestseller in three categories, is a story about a family who successfully plans for extended care using a practical three-step process.

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