Insurance-Related Compensation (Portfolio 828)

Description

The Bloomberg Tax Portfolio, Insurance-Related Compensation, No. 828, discusses how to use life insurance contracts to provide compensation and benefits for employees, especially, after the enactment of §409A. To assist practitioners with life insurance plans, this Portfolio provides a primer on life insurance features and taxation, including an overview of the most common types of life insurance contracts and riders, and shows how these insurance products are frequently used in executive compensation. It also discusses group-term carve-out and group permanent plans, corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI), executive legacy programs and business-owned investment insurance plans. It gives more extended treatment to bonus life insurance (including restricted access bonus plans), split-dollar life insurance, and to unsecured “promise-to-pay” nonqualified deferred compensation plans (including death-benefit-only plans) which use life insurance contracts primarily as the financing mechanism. Special design issues and problems are highlighted for each technique. All discussions consider the impact or potential impact of the application of §409A to the compensatory arrangement.

In addition, this Portfolio discusses the impact of §101(j) on “employer-owned life insurance” (EOLI), which covers most insurance acquisitions on employees and directors by a business entity in the business environment. This Portfolio also analyzes the federal income tax treatment of traditional group-term life insurance plans, with emphasis on the tax benefits provided to employees under §79, and examines the federal income tax treatment of retired lives reserve accounts under §§419 and 419A, and death benefit plans under §419(e) single employer plans. The Portfolio further examines the gift and estate tax and ERISA implications of group-term life insurance.

Bloomberg TaxPortfolios on related topics include 826 T.M., Life Insurance (Estates, Gifts & Trusts Series), 385 T.M., Deferred Compensation Arrangements, and 394 T.M., Employee Fringe Benefits.

This Portfolio may be cited as Brody, Richey, and Baier, 828 T.M., Insurance-Related Compensation.

Table of Contents

I. Introduction
II. A Life Insurance Primer
III. Employer-Owned/Corporate-Owned Life Insurance (EOLI or COLI)
IV. Bonus Life Insurance Plans
V. Insurance-Financed Deferred Compensation, Including “Death Benefit Only” Plans
VI. Split-Dollar Life Insurance Plans
VII. Group-Term Life Insurance