The IRS publishes base interest rates each month that are known as the applicable federal rates (AFR). They are used for various purposes under the Code, including being used in imputed interest and original issue discount rules. The AFR is normally available during the third or fourth week of the month.
Collateral assignment split dollar plan
A collateral assignment split dollar plan is one in which the policy is owned by the insured who assigns it to the employer as security for its interest in the policy.
Deferred compensation plan
A deferred compensation plan is a nonqualified plan under which additional retirement benefits are provided to selected executives. The plan may be a “true” deferred compensation plan or a salary continuation plan.
Defined benefit qualified plan
A defined benefit qualified plan is any qualified retirement plan that is not a defined contribution plan. The plan is couched in terms of the benefit to be provided the participants rather than the contribution to be made.
Defined contribution qualified plan
A defined contribution qualified plan is a qualified plan characterized by individual accounts. It is couched in terms of the contributions to be made for the benefit of the participants.
Endorsement split dollar
An endorsement split dollar plan is one in which the policy is owned by the employer who endorses to the insured the right to name a beneficiary for the death benefits in excess of the employer’s interest.
Executive bonus plan
Under an insured executive bonus plan, an employer agrees to pay some or all of the premiums on a life insurance policy owned by an executive. The employer’s premium payments are deductible to the employer as compensation paid to an employee. As a result, the premium payments are included in the executive’s W-2 statement, and the executive must include the premiums in his or her income for tax purposes.
Fifth dividend option
The fifth dividend option is a dividend option in a participating life insurance policy under which an amount of one-year term life insurance equal to the policy’s cash value is purchased each year by application of the dividend. Any dividend declared in excess of the amount required to purchase the term insurance can be applied under one of the other dividend options.
A funded plan is a deferred compensation plan to which specific assets are allocated to ensure that the promised benefit will be paid.
Golden handcuffs is a term that is sometimes used to refer to a salary continuation plan because of its ability to motivate participating executives to remain with his or her current organization.
Group carve-out plan
A group carve out plan is an arrangement under which an employer replaces the executives’ group life insurance in excess of $50,000 with individual universal life insurance policies. These individual universal life insurance policies are owned by the respective executives.
Informal funding means that an asset has been purchased by the employer to help it to meet its obligation to provide the promised benefits under a deferred compensation plan. That informal funding may be provided through the purchase of mutual funds, the creation of a sinking fund, the purchase of life insurance or by acquiring any other asset that will help enable the employer to provide the benefits that were promised. Regardless of the informal funding vehicle, for tax purposes, an informally funded plan is considered unfunded because the identified asset is attachable by the employer’s creditors.
Nonqualified plans are benefit plans used by businesses to provide benefits on a selective basis to chosen employees. The major types of nonqualified plans are split dollar, deferred compensation, executive bonus and group carve out plans.
The P.S.58 rate table is an age-based table of rates per thousand dollars of one year term insurance promulgated by the federal government that may be used as a measure of the value of insurance protection provided under split dollar plans, qualified retirement plans and tax-sheltered annuities. It has been largely replaced by the Table 2001 rate table.
A public corporation is a corporation whose shares of stock are readily available to the general public and are bought and sold in the open market.
A qualified plan is one that meets certain requirements and, thereby, qualifies for a current income tax deduction for contributions made to it.
A rabbi trust is an irrevocable trust used to accumulate assets to support deferred compensation arrangements and designed to overcome the concern that a change in company management could place the promised deferred compensation plan benefits in jeopardy. A rabbi trust, however, contains a provision that the trust assets would always be available to the employer’s general creditors in the event of bankruptcy. As a result of that provision, the IRS has held that, in the case of a deferred compensation plan whose benefits are secured by a rabbi trust, the participant would have no current taxable income.
An S corporation is a corporation that meets certain requirements and elects to have its income taxed to its stockholders rather than to the corporation. It is a domestic corporation that elects to be treated like a partnership for tax purposes.
Salary continuation plan
A salary continuation plan in a type of deferred compensation plan that does not require that the executive defer any compensation at all. Instead, the employer agrees to fund the benefit entirely. This plan is often known as a SERP-Selective Executive Retirement Plan.
Section 162 (IRC)
Section 162 of the Internal Revenue Code is the section that states that an employer may deduct certain expenses-including salary and other compensation-that are ordinary and necessary business expenses. It is in reference to this Code section that certain nonqualified plans, known as executive bonus plans, are sometimes referred to as Section 162 Plans.
A secular trust is a trust used to formally fund and secure nonqualified deferred compensation. Since funds placed in a secular trust are not subject to the claims of the employer’s creditors, they are generally subject to current taxation.
Split dollar plan
A split dollar plan, when used in an employee-employer situation, is an arrangement under which a permanent life insurance policy is purchased on the life of a key executive, and the premiums and death benefits are split between the employer and the executive (or a third party).
Split dollar rollout
The term “rollout” refers to the termination of a split dollar agreement, at which time the policy’s cash values are rolled out to repay the employer’s interest in the policy.
Table I rates
The Table I rate table is an age-based table of rates per thousand dollars of one year term insurance promulgated by the federal government for use as a measure of the value of excess group term life insurance.
Table 2001 rates
The Table 2001 rate table is an age-based table of rates per thousand dollars of one year term insurance promulgated by the federal government that may be used as a measure of the value of insurance protection provided under split dollar plans, qualified retirement plans and tax-sheltered annuities. It replaced the P.S.58 rate table.
Traditional split dollar plan
In a traditional split dollar plan, the part of the policy premium paid by the employer is equal to the increase in policy cash value each year.
True deferred compensation
A true deferred compensation plan is one that is consistent with the common understanding of the term: the participating executive agrees to delay the receipt of a portion of the compensation to which he or she is entitled. Typically compensation is delayed until the executive retires.
An unfunded plan is a deferred compensation plan whose benefits are supported by the general assets of the employer, rather than by a specific asset that has been segregated from those general assets. As such, these assets are attachable by the employer’s creditors.
Connie Dello buono, Life Lic 0G60621, helping business owners with retirement savings, key executive bonus and retirement plans. 4088541883 email@example.com