These plans split the premiums and benefits of a life insurance policy between the employer and employee. Generally, the employer pays all the premiums and is entitled to all the policy cash values and a portion of the death benefit equal to its cumulative premiums paid or the cash value. The employee's beneficiary receives the balance of the death benefit. The employee has current taxable income equal to the "economic benefit" rather than the full premium.

Internal Revenue Service (IRS) approval is not required for this type of non-qualified plan. Policy cash values show as an asset on the balance sheet and this asset grows on a tax-deferred basis. Unlike the expense of other fringe benefits, a split dollar plan can be structured so that the business eventually recovers the cost of the policy, while still offering the employee an exceptional fringe benefit of permanent life insurance protection. Plus, death proceeds are received by the employee's beneficiaries income tax-free.

Putting together a split dollar plan can be a complicated process. The MassMutual Financial Group companies can help you with this and other business solutions.