Key employee retention refers to strategies, often incorporating life insurance or annuities, that are designed to keep critical employees with a company over the long term by providing attractive deferred compensation, bonuses, or supplemental retirement benefits. These arrangements can include Section 162 bonus plans, nonqualified deferred compensation, supplemental executive retirement plans, and restricted executive bonus plans funded with employer owned policies. The goal is to align the key employee's financial future with the success of the business, reduce turnover risk, and create a clear long term value proposition for staying. Life insurance is frequently used because it offers tax deferred cash value accumulation and death benefit protection that can support both the employee's family and the employer's planning objectives.

In practice, advisors propose key employee retention plans when employers worry about losing top talent to competitors or want to reward long service without the complexity of broad based qualified plans. A common design is a Section 162 executive bonus arrangement where the employer funds a personally owned life policy for the executive, sometimes with restrictions that vest benefits over time. Other designs use employer owned policies within nonqualified deferred compensation or SERP structures, informally funding future benefit liabilities. Advisors coordinate with benefits counsel to ensure compliance with IRC Section 409A, ERISA considerations, and state insurance rules. They also model projected supplemental retirement income, survivor benefits, and vesting schedules to show how the plan supports retention. By combining thoughtful plan design with the leverage of life insurance, key employee retention strategies help businesses compete for and retain high impact leaders while providing meaningful financial security for those employees and their families.