NU Online News Service, Dec. 1, 2003, 4:34 p.m. EST – Only about 41% of banks with $100 million to $1 billion in assets have bank-owned life insurance, according to a study by researchers at The Todd Organization, Greensboro, N.C., an executive compensation firm.[@@]

Banks can use BOLI to protect themselves against the loss of senior executives and other “key persons,” but more use BOLI to fund special “nonqualified” retirement plans for highly paid executives.

Many highly paid executives contribute to plans that fail to qualify for all of the tax breaks afforded conventional 401(k) plans because conventional 401(k) plans are unlikely to replace an adequate percentage of the executives’ preretirement income.

When Todd researchers reviewed reports that midsize banks filed with the Federal Deposit Insurance Corp., they found that only 1,693 of the 4,175 banks in the $100 million to $1 billion size range had BOLI.

More than half of the banks with BOLI used BOLI to fund nonqualified retirement plans, and 73% of the banks with BOLI offered some kind of nonqualified retirement plan.

About 75% of banks with more than $500 million in assets had nonqualified retirement plans, but only 55% of the banks with $100 million to $250 million in assets had such plans, Todd researchers report.

The top executives at the bigger banks probably need nonqualified retirement plans more than colleagues at smaller banks because the bigger banks pay more, Todd researchers conclude.