Insurers Concerned Senate Exec Bill Will Unintentionally Impact Split-Dollar Life
Life insurance companies and agents are concerned that language in a Senate bill aimed at curbing alleged abuses in loans to corporate executives could unintentionally target split-dollar life insurance.
The concerns involve legislation being considered by the Senate Finance Committee involving corporate governance and executive compensation issues arising from Enron, WorldCom and similar controversies.
Sources told National Underwriter that at a Finance Committee markup of executive compensation legislation, committee staffers said it was not the intention to target split-dollar.
Nonetheless, the concern is that language could be interpreted to include split-dollar.
In a letter to Finance Committee leaders, the American Council of Life Insurers, Washington, says that the language appears to tax loans from employee-owned split-dollar arrangements on top of taxing the loan from a corporation to an officer to obtain the life insurance.
ACLI says this is a “double tax” that is entirely unnecessary and punitive.
“In addition, there is no reason to include split-dollar life insurance arrangements within the scope of this provision, especially in light of recently issued proposed regulations that fully tax employees on all corporate contributions to individual life insurance,” ACLI says.
However, a possible attack on corporate-owned life insurance was sidetracked during the same markup.
Sen. Jeff Bingaman, D-N.M., offered language on COLI that would require businesses to treat payments received from COLI policies as income if the insured has not been an employee in the year preceding the insureds death.
However, he subsequently withdrew the language.
ACLI had criticized the language, arguing it would amount to a tax on the inside buildup of most business life insurance policies.
The language, ACLI said, would endanger the ability of businesses, including small businesses, to have necessary key employee and business succession life insurance, and to provide critical retiree benefits.
The markupwhich is a formal committee session during which members vote on the provisions of legislationwas continuing at press time.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 15, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.