NU Online News Service, Jan. 22, 2004, 4:55 p.m. EST, Washington – The Senate Finance Committee is expected to consider and approve industry-supported legislative language on corporate-owned life insurance Jan. 28.[@@]

“That is our understanding and our hope,” says Bob Plybon, president of the Association for Advanced Life Underwriting, Falls Church, Va.

Plybon says the life insurance industry spent 4 months in discussions with the Finance Committee staff to develop language that the committee can consider and approve.

Under the proposed legislative language, death benefits from COLI policies 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 employee’s family, beneficiary, trust or estate, or are used to purchase an equity interest in the employer, such as under a buy-sell agreement.

In addition, death benefits will not be taxable if the employee is a company director or 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.

The language also requires employers to obtain the written consent of employees before purchasing coverage for them.

In addition, employers must notify employees in writing that the coverage may continue after the insureds leave employment and that the employer will be the beneficiary.

Employers also must file annual statements with the Internal Revenue Service disclosing their total number of employees, the number of employees covered by COLI policies and the total amount of insurance in force.

If approved, the language will put an end to a firestorm that began when Senate Finance Committee member Jeff Bingaman, D-N.M., introduced language that, with some exceptions, would tax the death benefits on almost any COLI policy covering employees who died more than 1 year after leaving employment.

The committee approved the Bingaman language by voice vote.

The life insurance industry criticized the Bingaman provision, arguing that it sought to solve a problem that did not exist.

The broad-based COLI coverage, sometimes called “janitors’ insurance,” targeted by the Bingaman language was addressed in 1996 legislation and has not been sold in years, the industry says.