Non-Qualified Deferred Compensation

SunSolutions For Life SM

401(k) Mirror Plans

Recent legislation on qualified retirement plans penalizes highly compensated employees by limiting their
ability to defer money to fund their retirement.
As employers look for ways to attract and retain key employees, they are finding non-qualified plans
for highly compensated employees can make up the qualified plan shortfall. A 401(k) Mirror Plan may
provide the solution to the problem.
The 401(k) Mirror Plan is an employer sponsored non-qualified retirement plan. Through a written
agreement with the employer, the key employee elects to defer a portion of his/her income and/or bonuses.
The employer matches the employee’s deferrals, similar to a 401(k) plan. Also like a 401(k) plan, the amounts
are distributed to the employee in retirement.

KEY FEATURES
Companies can provide their key employees with the opportunity to defer substantial amounts of pre-tax
compensation with a 401(k) Mirror Plan.
Key Features include:
 Discrimination is permitted. The employer can pick and choose which key employees can
participate as long as they are members of management or highly compensated (so-called
“Top Hat” Plan)
 No limits on salary deferral. No minimum or maximum, and the amounts may vary
among employees in the plan.
 Flexible payment schedules. Section 409A dictates when distributions can occur. Generally,
they need to be specified in the plan document.
Advantages:
 Employer — Plan provides a method of recognizing and rewarding key employees. There are
no government-imposed limits and minimal ERISA compliance. Existing qualified
401(k) plans do not have to be altered to add this plan.
 Employee — There is no limit to the amount that may be deferred and there is the potential
for an attractive rate of return on a tax-deferred basis.

HOW THE PLAN WORKS

Written Agreement — The employer and key employee enter into a formal written agreement which
specifies the duties and obligations of each party. The agreement defines how benefits will be determined
and under what conditions they will be paid.
Key Employee Income Deferrals — The key employee can defer current income on a pre-tax basis, like in
a 401(k) plan. Any limitations on the amount and duration of the deferrals are imposed by the employer
under the agreement. In return for deferring income, the key employee is provided with retirement,
survivor and/or termination benefits based on the amounts of salary/bonus being deferred. Participation

FOR PRODUCER USE ONLY. XMSD 44/641

NOT FOR USE WITH THE PUBLIC. SLPC 18004 11/07
Exp. Date 07/10
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 is voluntary and the key employee is free to change the amount being deferred from year to year, subject
to the provisions of the written plan. Unlike 401(k) plans, but consistent with all other non-qualified
deferred compensation arrangements, the deferrals are subject to the claims of creditors.
Employer Matching Contributions — Employer contributions “match” those of the key employee up to a
prescribed limit set by the employer, similar to a 401(k) plan. Employer contributions are often subject
to a vesting schedule which could require some forfeiture of benefits if the executive leaves employment
prior to normal retirement date.

PLAN BENEFITS
Retirement Benefits
The employer will establish an account for each key employee and will credit the account with the salary
deferred by the key employee and the employer match. The employer credits the account with earnings
based on the performance of the underlying investments selected by the key employee.
The key employee can select from a variety of separate sub-accounts to be used as an index in determining
the value of the account. The plan administrator will determine to what extent the contributions to the
plan will be invested in the funds selected by each participant. At retirement, the key employee may
receive the value of the account in a lump sum or in a series of payments, depending upon the terms of
the written plan agreement.
Survivor Benefits
If the key employee dies prior to retirement, the employer can offer a pre-retirement death benefit for the
employee’s beneficiaries. If death occurs after retirement, the plan account will be payable to the
beneficiaries either in a lump sum or in periodic payments, depending upon the terms of the written plan
agreement.
Termination Benefits
If the key employee terminates employment prior to normal retirement, he/she will be entitled to receive
the vested value of his/her account. The plan may give the option of leaving the account with the employer
and continuing the deferral until normal retirement age.

PLAN FUNDING
Variable Universal Life policies (e.g., Sun Executive VUL) which allow for the tax deferred accumulation
of money invested in separate sub-accounts with different investment objectives (just like a 401(k) plan)
work well in these types of arrangements.
The use of life insurance also gives the employer the option of offering significant pre-retirement survivor
benefits if the key employee dies prematurely. In addition, any life insurance proceeds received by the
employer in excess of the benefit payout under the plan, will be retained by the employer and may be
used to recover the costs of the plan.

TAXATION
Employer
Benefits paid to the key employee are fully tax deductible by the employer in the year they are paid. While
insurance premiums are not tax deductible, the policy cash values accumulate income tax tree. When they
exceed premiums paid, the cash value has a positive impact on the employer’s financial statements. Death
proceeds from life insurance contracts are normally received income tax free by the company.
Employee
Participating key employees have no reportable income under the plan prior to the receipt of plan
payments. Therefore, all compensation deferred by the key employee, any matching contributions by the
employer, and the earnings credited to the deferral account are only taxed when they are actually paid to
the key employee.
Beneficiary
Payments made to the key employee’s beneficiary will be taxed as ordinary income when received.

FOR PRODUCER USE ONLY. XMSD 44/641

NOT FOR USE WITH THE PUBLIC. SLPC 18004 11/07
Exp. Date 07/10
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 EXAMPLE: 401(K) MIRROR PLAN
Key Employee Age 45 Annual Salary $200,000
Employer Match 50% ($10,000) Executive Contribution $20,000 (10%)
Total Contribution $30,000
Rate of Return 8% (Net)
Payable @ Age 65 Lump Sum or 15 year payout Policy Face Amount $1,012,000

SUN EXECUTIVE VUL LIFE INSURANCE*

Annual Company Retirement a/c Annual Net Cash Net Death
Year Age
Deferred Match @ 8% Retirement Benefit Surrender Value Benefit
1 46 20,000 10,000 32,400 29,622 1,011,848
5 50 20,000 10,000 190,078 161,768 1,011,848
10 55 20,000 10,000 469,365 379,872 1,011,848
15 60 20,000 10,000 879,728 731,830 1,435,265
20 65 20,000 10,000 1,482,688 1,238,772 2,144,632
21 66 160,390 1,201,463 2,032,032
22 67 160,390 1,161,264 1,919,864
23 68 160,390 1,117,976 1,807,748
24 69 160,390 1,071,377 1,695,296
25 70 160,390 1,021,169 1,585,063
30 75 160,390 694,707 1,247,462
35 80 160,390 196,038 684,198
400,000 200,000 2,405,857

At age 65 Annual Retirement Benefit

Value of a/c OR $160,390
$1,482,688 for 15 years
(Lump Sum) $2,405,857

WHY USE SUN EXECUTIVE VARIABLE UNIVERSAL LIFE INSURANCE?

 Competitive Pricing
 Target Premium is equal to the TAMRA
(7 pay) premium
 No surrender charges, which results in
a company accounting benefit
 Low cost loans — wash loans available after 10 years
 Innovative Design
 Flexible death benefit options
 Two definitions of Life Insurance
 Strong Product Features
 Flexible underwriting options
(guaranteed, simplified, and full
medical underwriting available)
 High early cash value accumulation
 Flexible term rider
 Charitable Giving Benefit Rider
 Assist America Endorsement

Contact our Advanced Planning Attorneys at 800-432-1102, ext. 1846, 1756,

1838, or 1969, or the Advanced Case Design Team at ext. 2450.

FOR PRODUCER USE ONLY. XMSD 44/641

NOT FOR USE WITH THE PUBLIC. SLPC 18004 11/07
Exp. Date 07/10
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 This information contains references to concepts that have significant legal, accounting and tax implications. It is not intended as
legal, accounting or tax advice. Clients should consult with their own financial and tax advisor regarding the application of these
concepts to any particular situation.
*This illustration is designed to present an understanding of the mechanics of Sun Executive VUL in a 401(k) Mirror Plan.
Variable Universal Life Insurance policies are subject to market risks, including possible loss of principal. When accessing
policy values, policy holders may receive more or less than they invested. Partial withdrawals and loans will reduce the policy
Death Benefit and the Account Value by the amount of the withdrawal. Withdrawals that exceed the amount of premiums
paid into the policy will be taxable.
Complete VUL illustrations contain three sets of values in the following sequence:
1. Based on one assumed rate and current cost of insurance rates.
2. Based on three assumed rates (including 0%) and current cost of Insurance rates.
3. Based on three assumed rates (including 0%) and Guaranteed Cost of Insurance rates.
Variable Universal Life Insurance products are issued by Sun Life Assurance Company of Canada (U.S.), and in New York, by Sun
Life Insurance and Annuity Company of New York, and distributed through our affiliated broker-dealer, Sun Life Financial
Distributors Inc. Variable Universal Life Insurance products are offered by prospectus. Customers should request a prospectus,
which provides more details about charges and expenses, and review it carefully before investing.
Not FDIC/NCUA insured. May lose value. No bank/credit union guarantee. Not a deposit. Not insured by any federal
government entity.
©2007 Sun Life Assurance Company of Canada. All rights reserved. Sun Life Financial and the globe symbol are registered
trademarks of Sun Life Assurance Company of Canada.

FOR PRODUCER USE ONLY. XMSD 44/641

NOT FOR USE WITH THE PUBLIC. SLPC 18004 11/07
Exp. Date 07/10
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