The Bank Funded Retirement Plan: A Viable Supplemental Retirement Option?

The Bank Funded Retirement Plan (BFRP) is an additional discretionary retirement/compensation plan designed primarily for key employees of any qualifying company or any individual who meets the health and financial requirements. While qualifying employees or individuals may separately implement a similar plan for themselves, it will only reflect their contributions along with the bank’s contributions. The absence of any employer contribution is the primary difference.

The BFRP uses leverage in the form of bank loans. Participating banks will grant a loan for the benefit of any qualified employee, entity, or both. Employee funds are generally placed into an account on an after-tax basis but, in some instances, the plan can be funded with pre-taxed dollars.

While there is an insurance policy involved within the plan, it is the sole collateral of the bank loan and requires a health screening exam that the employee must pass. Each employee will have to meet the financial and health specific requirements to qualify.

The bank provides a 3-to-1 match, meaning for every dollar an individual contributes, the bank contributes three. Contributions to the plan are made by each employee/individual for the first five years and the bank contributes for 10 years. Income starts approximately on or after year 15.

Why Does This Work?

  • More contributions with a 3-to-1 match
  • Tax deferred growth and tax-free distribution
  • Downside market protection (since there is a zero floor)
  • Turn expenses into assets (applicable only to C-Corps and Not-For-Profits)

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About the Author

Ward Powell

Ward Powell is the President of The Ward Powell Group, Inc, a Financial Services Agency, also licensed as a general agency in most surrounding and major states, located in Chicago, IL.

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