Don't Mention It

As part of the employment contract that should accompany a restrictive executive bonus arrangement, a repayment clause should be included that specifies that if the executive fails to meet his employment obligations, some or all of the bonuses would be repaid to the employer. A vesting schedule is normally used to accomplish this obligation. However, vesting should not make direct references to the policy's cash value, or the arrangement could be defined as a split dollar loan regime plan, which could trigger adverse tax consequences.