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Most group retirement plans are some form of a defined-contribution plan such as a 401(k) or a 403(b) plan.  These plans allow participants to defer either pre-tax or post-tax dollars into a retirement account to be accessed at retirement.  For companies with a lot of high earning employees (e.g., law firms, management consulting firms, government contractors) you may desire a plan with a deferral limit larger than the $16,500 (with an addition $5,000 for catch-up contributions if you are over the age of 50).  One of the alternatives is a Group VUL plan.

A Group VUL plan provides a Variable-Universal Life insurance policy to eligible participants.  Like a 401(k) plan, the contributions grow tax free within the investment funds inside of the life insurance policy.  But the employee may be able to contribute more money into the funds than what is allowable in a typical 401(k) plan.  In addition, a Group VUL plan is a non-qualified plan meaning ERISA regulations do not apply and the company may discriminate with the eligibility policy.

And because the plan is on a group platform, the life insurance policy is a guaranteed issue product.  There is no medical underwriting as long as the employee is actively working.  In most cases with larger groups, the death benefit may be over $1,000,000.  And because these products are rated for the entire “book of business,” the cost for the life insurance has been less then the cost of a group term policy in the past (rates for new business change based on the claims experience of the pool).

As mentioned above, the capital gains from the investments are not taxed as it grows.  But the plan does operate similar to a Roth retirement plan in that the contributions are taxed, but the withdrawals are not up to the basis (amount paid in).  But like all insurance policies with cash value, the funds in excess of the basis may be withdrawn tax-free if withdrawn as loans.     

For more information, please contact Bridgeport Benefit Advisors.

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The material on this page is intended as general descriptions of the concepts presented.  It is for educational purposes only and it not intended to provide specific financial or tax advice.  These descriptions cannot take into account your specific conditions and situation including the data required for underwriting purposes, financial circumstances, risk tolerance, and other factors.