Jump to content

Can ESOP own life insurance on a Key EE?


Recommended Posts

I have seen it done. I don't think it is a very good method. It raises a number of issues. 1) Fiduciary: Is this really the best use of the assets? Is it for the benefit for the participants or the sponsor? (After all it is often times used to stop the sponsor from having a cash crunch if the big balance guy dies- the sponsor seems to be mainly benefiting here.) 2) It is a plan assets so every year you allocate the increase in CSV simple enough. How do you allocate the death benefit? Based on cash value before death? Compensation? 3) Do you really want to reallocate all the shares the benefit is used to pay all in one year? Kind of a lucky windfall for the people in the plan that year, including terms who might share if you allocate the death benefit on CSV.

More common is for the sponsor to hold a policy outside of the plan and use the death benefit to make a contribution/loan to the plan/buy the stock and put into treasury. If the balance is very large the loan allow one to spread the allocation over a good number year and stops the windfall issue. That would happen also if you buy the stock to treasury and contribute the stock back over the years.

The increase in the CSV grows tax free, the death benefit is tax free.

You go to a NCEO conference or an ESOP conference and there are a number of insurance people there who will gladly sell you the insurance and set it all up for thier nice commission.

Link to comment
Share on other sites

Guest vsaper

The better approach is to have the employer purchase the life insurance. If the key employee dies the employer can use the proceeds to purchase the key employee's stock or the employer can loan the proceeds to the ESOP which can then purchase the stock.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...