Under a typical deferred compensation arrangement funded with life insurance, which party owns the policy and controls its cash value?

Why A is correct

In a conventional deferred compensation arrangement, the employer owns the life insurance policy used to fund the future obligation, pays the premiums, and is the beneficiary of the death benefit. The employer's ownership gives it control over the policy's cash value, and the promised payments are made to the executive at retirement from the employer's funds. Because the employer is the owner and beneficiary, the arrangement creates no current taxable income for the executive. The executive has only a contractual right to the promised future benefits, not an ownership interest in the policy.

Why the other options are wrong

• The executive is not the policyowner in a standard deferred compensation plan; the executive has only a contractual promise of future benefits. If the employee owned the policy, the arrangement would resemble an executive bonus plan instead.
• A beneficiary receives the death benefit only on the insured's death and holds no ownership rights over the cash value while the insured is living. The employer, as owner, names the beneficiary and can change it.
• A separate account is used by variable policies, not by the employer-owned general-account policy typically used to fund deferred compensation. The insurer holds the assets, but the policyowner is the employer.

Memory hook

Deferred comp means the employer owns the policy and the employee gets only the promise.