Industry Pleased With Senate Panels COLI Legislation Draft
By
Washington
Industry representatives are praising a discussion draft on corporate-owned life insurance legislation that was released by the Senate Finance Committee.
"It is a good proposal," says Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va. "It solves any perceived problems but allows COLI to go forward as a viable funding vehicle for employee benefits."
Plybon also praises Senate Finance Committee Chairman Charles Grassley, R-Iowa, for announcing that he plans to markup, or formally consider, the proposal in the next few weeks.
Jack Dolan, a spokesman for the American Council of Life Insurers, Washington, says the committees proposed reform is reasonable and ACLI can support it. He praises Grassley and the entire committee for taking a common sense approach to the issue.
Under the proposal, death benefits from COLI contracts will be taxable unless they meet certain new requirements.
Specifically, the benefits will not be taxable if the deceased individual was an employee within 12 months of death or if the death benefits are payable to the employees family, beneficiary, trust, estate or are used to purchase an equity interest in the employer such as under a buy-sell agreement.
In addition, the death benefits will not be taxable if the employee is a key person, which is defined as either a "highly compensated employee" under Section 414(q) of the tax code or a "highly compensated individual" under Section 105(h)(5) with a salary in the top 35% for the employer, or is a company director.
But in addition, the draft contains new notice and reporting requirement for employers.
Employers must provide employees with written notice of the insurance coverage, including that the coverage may continue after the insureds leave employment, and that the employer will be the beneficiary of any proceeds.
The employee must consent to the coverage in writing.
As for reporting, the draft requires employers to file statements with the Internal Revenue Service at the end of each year on the total number of employees, the number of employees covered by the COLI policy and the total amount of insurance in force.
The effective date of the draft generally would be the date of enactment, but there would be an exception for contracts issued after the date of enactment as part of an exchange for an earlier contract.
The Finance Committee is asking for comments on the draft to be submitted by Jan. 26, 2004.
