Phantom Stock Plan
Phantom Stock Plan
Phantom Stock Plan
Plan Year 1
300 units @ $100 = $30,000
Earnings @10% + 3,000
300 units @ $110 = $33,000
Plan Year 2
$15,000 award
@$ 110 units = 136.36 units
Carry forward from Year 1 300.00
Total = 436.36 units
Earnings for Year 2 are again credited at 10% = $ 11 per unit
New value per share (110 + 11) = $ 121 per unit
Balance of Employee A’s account at end of Plan Year 2
436.36 units x $121 = $52,800
The plan is projected to continue for a total of 15 years with the employer crediting $15,000/yr growing
at 10%. At the end of year 15, the hypothetical account will have grown to $586,905. At that point, under
the terms of the deferred compensation agreement, the key employee may take a lump sum or spread the
payments over time as specified in the agreement. After taxes (at 40%) the lump sum would be $352,143 or a
10 year payout would be $52,100 per year.
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In this particular case, for a 50 year old female executive, the business purchased a $500,000 Sun Executive
Variable Universal Life Policy with an increasing death benefit. It was funded at $20,100 annually for the 15 year
accumulation period. That policy, returning a net rate of 8%, will fund the benefit payments for the Phantom
Stock Plan, as well as provide a death benefit in the case of pre-retirement death.
Conclusion
A Phantom Stock Plan is a type of non-qualified deferred compensation arrangement. However, unlike most
other types of non-qualified deferred compensation plans, a Phantom Stock Plan gives the employee a
piece of the action. For the employer, it is desirable because it does not require a transfer of stock to the
employee. The employee participates in the future growth of the business through appreciation in his or her
Phantom Stock units.
For more information, please contact your Sun Life Financial representative.
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.
All guarantees are based on the claims-paying ability of the issuing company, Sun Life Assurance Company of Canada (Wellesley Hills, MA),
Sun Life Assurance Company of Canada (U.S.) (Wellesley Hills, MA) or, in New York, Sun Life Insurance and Annuity Company of New York
(New York, NY). All are members of the Sun Life Financial group of companies.
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Assurance Company of Canada.
XMSD 44/606 (Exp. 03/10) 3 of 3 SLPC 17950 (09/07)