New Legislation Extends Popular Tax Provisions

New Legislation Extends Popular Tax Provisions

Client Alert: New Legislation Extends Popular Tax Provisions

The Tax Increase Prevention Act of 2014 Extends Expired Provisions - December 19, 2014 In one of its final actions, the 113th Congress passed the Tax Increase Prevention Act of 2014. This legislation extends through 2014 a host of popular tax provisions (commonly referred to as "tax extenders"). Client Alert: New Legislation Extends Popular Tax Provisions We'll continue to pass along timely, relevant information.

LIFE INSURANCE KEY TO MOST EXECUTIVE COMPENSATION PLANS

The vast majority of large businesses rely on life insurance to fund key portions of their executive compensation plans, according to a new report.

The latest edition of The Newport Group’s “Executive Benefits: A Survey of Current Trends” found that 73 percent of America’s largest companies—those with $1 billion or more in annual revenue—use company-owned permanent life insurance, or COLI, to fund their non-qualified deferred compensation (NQDC) plans for key executives. Even more—82 percent—use life insurance to fund their supplement executive retirement plans (SERPs).

NQDC plans and SERPs are often used as incentives to attract and retain high-level employees. Among those surveyed, 78 percent said they offer an NQDC plan to executives. Among those who didn’t, 55 percent said they plan to offer one in the next one to two years.

The report shows, when it comes to funding NQDC plans and SERPs, COLI was heavily favored over all other investment vehicles, including mutual funds, bonds and company stock, by the businesses surveyed. Why? Life insurance has several advantages over other investment vehicles when it comes to funding NQDC plans and SERPS, including:

• The inside build-up of cash value occurs tax free, though some employers are subject to the alternative minimum tax (AMT).
• The owner of the life insurance policy—in this case, the company—can make tax-free withdrawals from the policy up to the amount of the owner’s basis. After that, the owner can take a tax-free policy loan, depending on the policy’s contract limitations and charges.
• Life insurance death benefits are income tax-free to the employer (yet still subject to the AMT).

Employers can use the policy’s cash value distributions to pay the employee’s retirement benefits or, upon the employee’s death, the death benefit can be distributed to the employee’s beneficiaries. Cash value distributions or the death benefit can also be used to reimburse the employer for funds paid out to the employee in the form of retirement or disability benefits.

Want to learn more about life insurance and its role in executive benefits packages? Contact Schnack Financial today at 888.734.6575.