1. FACT FINDING FOR SELECTIVE
BENEFITS PLANS FOR
KEY MANAGEMENT
THE NORTHWESTERN MUTUAL
LIFE INSURANCE COMPANY

2. FACT FINDING - OVERVIEW
There has been significant growth in the number of small to mid-sized companies that have
implemented selective nonqualified benefit plans for their key management. Typical nonqualified plan
designs include deferred compensation programs (both SERP and elective deferred compensation plans),
split dollar, and bonus plans.
Successful fact finding is the cornerstone of any prudent case design strategy. The goals and objectives
of the employer will determine the design of any nonqualified benefit plan. While the nonqualified
planning options may seem daunting, proper fact finding will narrow down the choices and present
options that will be best suited for a client’s goals.
There is no perfect plan design. The plan advantages should align well with the client’s goals and any
plan challenges should be manageable. The Comparison of Nonqualified Benefit Plans Informally
Financed with Life Insurance [F.O. 34-2012 (1208)] presents the features of the four most commonly
used plans and may be helpful in determining which plan fits most closely with the client’s objectives.
This fact-finder is designed to find answers to important plan design questions. The responses will
allow the proper structuring of a nonqualified plan based on the goals and objectives of the client.
The “Observations” section provides information regarding the underlying importance of the fact-finder
questions. You can find more detailed information about plan designs and related issues on The
Advanced Planning Library and by contacting the attorneys in the Advanced Financial Security
Planning division.
Observations about fact finding questions
Nonqualified Plan Participant Eligibility
Keep in mind that, to avoid some of the more onerous requirements of ERISA, participation in most
nonqualified benefit plans is limited to “a select group of management or highly compensated
employees” – the so-called Top-Hat exemption. The Internal Revenue Service and Department of Labor
have not defined in absolute terms the requirements for Top-Hat employee classification and, as a result,
clients and their counsel should be involved in identifying the employees that satisfy the “select group”
and “highly compensated” definition. Contact the attorneys in the Advanced Financial Security Planning
division for information on possible indicators in identifying a Top Hat group.
General Information
#4: Knowing the federal tax structure of the business entity is important. It’s generally useful to
categorize the tax status of a business as:
Separate taxpaying entity – C Corporations are taxable entities, separate from their owners.
Flow-through entity – S Corporations and Partnerships are not taxable entities; instead taxation
of their income “flows through” and falls upon their owners. Sole proprietorships are similar,
in that the owner is taxed because there is no entity separate from the one owner.
Tax-exempt entity – Certain non-profit and governmental entities are not taxed on their
income.
Fact Finding Overview is for Educational Purposes Only – Not to be used with the Public
34-2011 The Northwestern Mutual
Life Insurance Company • Milwaukee WI

3. Don’t confuse federal tax status with organization under state law. For example, a business that’s
organized under state law as a Limited Liability Company (LLC) generally can elect to be taxed as
either a corporation or a partnership. Most LLCs elect to be taxed as partnerships, but some elect to be
taxed as corporations (prompting the next question of whether it is a C or an S Corporation).
Other labels that describe organization under state law are Professional Service Corporation (tells you
it’s taxed as a corporation, but not whether it is a C or S Corporation) or Limited Liability Partnership
(tells you it’s taxed as a partnership). There are other labels, but regardless of the state law
terminology, you should look behind these labels to decipher federal tax status.
Tax status of the entity is important because it affects the viability of certain plans. For example:
Owner/employees of flow-through entities generally should not create deferred compensation
or split dollar plans for themselves. Both plans work best only when the individual employee
can “shift the cost” of the plan’s current taxation to a separate taxpayer. This is not possible
with a flow-through; the owners are taxed currently no matter what.
If the benefited employee is not an owner, however, all plans are viable. It’s just that owners
of flow-through entities must remember that, for plans that “shift the cost” to the business –
deferred compensation or split dollar plans – that cost is shifted to the owners themselves.
Tax-exempt entities are subject to peculiar and complex rules that can require plans to contain
special provisions (e.g., under IRC § 457, an improperly drafted deferred compensation plan
can cause taxation to participating employees even before they are paid).
#8-10: Business succession and long-term stability is an important consideration for any plan design
since the business is typically the sole funding source for most plans. Business succession is crucial
for an employer-controlled plan since the benefit payout may be years beyond the working horizon of
current owners.
Current Plans
#11-13: It is important to know what types of current benefit plans (both qualified and nonqualified)
are being offered since it reveals the willingness of the business to assist the employees. Does the
business have a problem with current retirement plans due to limitations and/or lack of participation by
the rank and file?
#15: Helps to evaluate where benefit plan needs might be. Is the business entity satisfied with current
programs? Has any informal financing performed as intended?
Fact Finding Overview is for Educational Purposes Only – Not to be used with the Public
34-2011 The Northwestern Mutual
Life Insurance Company • Milwaukee WI

4. New Plan Design Information
#17: As stated earlier, owners of flow-through businesses are limited in nonqualified plan design
options that defer income tax.
#19: It is essential to determine the importance of certain plan characteristics. For example, the
company cannot have both (i) a current deduction and (ii) the ability to own and control the informal
financing asset. The responses to #19 will help point to the most suitable plans that align with the
business’s goals and objectives.
SERP Elective Deferred Split Dollar Bonus
Income Plan
Most Employer Control Least
Least Employee Benefit Security Most
There are a number of resources addressing nonqualified benefit plans on LINKnet. In particular, the
Life Cycle of a Nonqualified Benefit Case (34-2010) guides you through the phases of case development
and includes the resources available to you and your client.
Fact Finding Overview is for Educational Purposes Only – Not to be used with the Public
34-2011 The Northwestern Mutual
Life Insurance Company • Milwaukee WI

5. NONQUALIFIED BENEFIT PLAN FACT FINDER
Key opening questions that will help you get the attention of your prospect:
Talented employees may be among your company’s most valuable asset. Are you losing your key
personnel to competitors? Yes No
If Yes, what steps have you taken to address this issue? _____________________________________
__________________________________________________________________________________
Are you having difficulty attracting qualified key employees? Yes No
If Yes, what steps have you taken to address this issue? _____________________________________
__________________________________________________________________________________
Do you have a program to reward key employees for their contributions to your company’s success?
Yes No
If Yes, please describe it? ____________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
Are qualified plan contribution limitations affecting your key employees? Yes No
Are you interested in providing benefits on a selective basis to your high-performing key
employees? Yes No
* * * * *
34-2011 -1- The Northwestern Mutual
Life Insurance Company • Milwaukee WI

6. General Information
1. Business Name: ________________________________________________________________
2. Business Address: _______________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
3. Primary Contact:
Name: ________________________________________________________________________
Title: _________________________________________________________________________
Phone: ____________________________________ Fax: ______________________________
Email Address: _________________________________________________________________
4. Federal tax status of business entity:
Separate taxpaying entity Flow-through entity Tax-exempt
(C Corporation – could (includes Sole Proprietor, S (includes non-profit entities,
include Professional or Corporation, Partnership, LLC and state government
Personal Service Corporations, taxed as either, Ltd. Liability employers)
and LLC taxed as C Partnership, and Professional or
Corporations) Personal Service Corp electing S
Corporation status)
Other (explain) __________________________________________________________
5. Business tax rate:
If C-Corp __________%
If a tax flow-through entity (S-Corp., Partnership, etc.), enter tax rate of the owners: ________
____________________________________________________________________________
6. Total number of owners of flow-through entity (if applicable): ___________________________
7. Total number of employees _______________________________________________________
8. Total number of key employees: ___________________________________________________
9. How long has this business been operating?_____ How long does it expect to continue? ______
10. Is the business publicly held? No Yes [If Yes, skip to Question 12.]
11. How likely is it that the business will continue beyond the current ownership?
Very Likely Somewhat Likely Not Likely
If Very Likely or Somewhat Likely, is the successor ownership in place? No Yes
Is there a written plan to continue the business in the event of death, disability or retirement of an
owner? No Yes
34-2011 -2- The Northwestern Mutual
Life Insurance Company • Milwaukee WI

7. Current Plans
12. Does your company have a qualified pension or profit sharing plan in place? No Yes
If Yes, what types of qualified plans are offered?
401(k) (Vendor ________________) Defined Benefit Other _________________
Profit Sharing Money Purchase
Are you satisfied with the effectiveness of your qualified benefit plans? Yes No
If No, why not? ______________________________________________________________
___________________________________________________________________________
Do qualified plan limitations challenge your highly compensated employees’ ability to
maximize their 401(k) contributions? No Yes
Are company contributions on behalf of your key employees reduced due to regulatory
limitations? No Yes
13. Do you offer any type of life insurance to employees? No Yes
If Yes:
Group term insurance
Amount or Formula___________________________________________________________
What is maximum death benefit? ____________________________________________
Does your group term program provide coverage after retirement? No Yes
If Yes, Amount or Formula__________________________________________________
How well does your current group life insurance program satisfy the life insurance needs
of your key employees? ____________________________________________________
Individual insurance (Type and Amount)
Payroll Deduction __________________________________________________________
Bonus ____________________________________________________________________
Split Dollar________________________________________________________________
Other ____________________________________________________________________
14. Do you offer selective benefits to your key employees: No Yes
If Yes, what type of plan(s) and how many participants?
Executive Bonus _______ Death Benefit Only _______
Split Dollar Insurance _______ Long Term Care _______
Elective Deferred Compensation _______ Disability Wage Continuation _______
Supplemental Executive Retirement (SERP) _______ Other: ____________________
15. Have you financed your SERPs or Elective Deferred Compensation Plans? No Yes
If Yes, what is the financing asset?__________________________________________________
16. How do you feel about your current selective key employee benefit programs? ______________
______________________________________________________________________________
34-2011 -3- The Northwestern Mutual
Life Insurance Company • Milwaukee WI

8. How effective are the programs in meeting your goals and objectives? _____________________
______________________________________________________________________________
New Plan Design Information
17. Number of key employees to include in program: _________
18. Will the business owner(s) be included in the program? No Yes
19. What type of benefit do you want to provide?
Future Income Death Protection Both
If Future Income, should the obligation be informally financed or will you pay the benefits out of
business cash flow?
Informal Financing Business Cash Flow
20. To help me assist you in selecting a suitable nonqualified benefit plan, please answer the
following:
Very Moderately Not
How important is it to have… Important Important Important
…a plan that retains the EE more than
rewards EE currently?
…a plan that rewards the EE currently
more than retains EE?
…the ER control the amount and
receipt of benefits by the EE?
…the ER recover its costs for the plan?
…the EE help pay for benefits?
…the benefits remain secure from the
creditors of the business?
…the ER control any financing asset?
…minimize current taxation to the EE?
…the ER receive a current tax
deduction?
…a plan that does not create an
accounting liability on the ER’s
financial statement?
…minimal ongoing administration
costs?
21. The dollars to finance this program should come from:
Business Key employees Shared
22. How much is the business willing to spend for the plan?_______________________________
34-2011 -4- The Northwestern Mutual
Life Insurance Company • Milwaukee WI

9. Notes
34-2011 -5- The Northwestern Mutual
Life Insurance Company • Milwaukee WI

10. Key Employee Information:
DOB/ Tax Tobacco Benefit/ Employer
No. Name Age Gender Salary Rate Health Use Deferral Contribution
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
34-2011 The Northwestern Mutual
-6-
Life Insurance Company • Milwaukee WI