Mark Whitelaw

Just curious if anyone has seen anything dealing with Participant enrollment disclosure and possible implications of different best interest regulations. Thanks

Agree 100% I see surveys showing companies extending 409A plans down to managers making $100,000 - $150,000. Common to see life insurance companies promote inducing managers making $125,000. WOW!!! Back when I was supporting NQDC we never included anyone that already wasn't in the maximum tax bracket. Otherwise, bracket creep exposure and would have been better just putting their after-tax paycheck in a no-load NQ Variable Annuity.

Not saying that. Not the point. Expecting the most exposed 409A participants are those in lower management positions. Don't see 409A exceptions for being terminated and later rehired. Just curious if these people are SOL or not.

3.28 million jobless claims last week. Wow!

Many companies are laying-off their workers temporarily to get them off their payroll and onto unemployment benefits. Expect this will trigger lump-sum termination distributions to a lot of participants - especially at companies that extended 409A plans to lower and middle management HCEs. Luke - Thoughts? Anything those employers can do? Thanks!

Bonus 162 was / is used as ether (1) a supplemental death benefit program (minimum premium) to supplement group benefits or (2) as an employer funded plan where 409A SERP’s and the unsecured creditor risks are too high. Yes – for a while it also was a way for executives to access a level of investment alternative value not available in retail products – COLI products where the value is cost-shifting from a 20%+ cost of taxes on investment gains to a 3%-7% cost of insurance. Personal lifelong alternative to taxable investing for executives capped-out of tax qualified plan / life-after-career management container for 409A distributions. In recent years a handful of specially approved TPA / BGA firms have started up where executives / advisors can access COLI products through the TPA firm. Not buying a life insurance policy in the retail sense, but joining the firms institutional life insurance investment management program that the COLI issuer approved and has made their institutional product available. Today there are three levels of life insurance product and consumer: Retail – General purpose products designed first for death benefit protection. Institutional – Registered products for white-collar roles with $1+ million net investable assets designed first to serve as alternative investment management containers. Private Placement – Institutional products that include un-registered investments for those with $5+ million net investable assets. The role of Bonus 162 is diminishing with the personal direct access to institutional products – give the executive the money and introduce the executive and their investment advisor to the TPA / BGA to determine what makes the most sense.

AALU announced today: Today, the Ways and Means Committee passed H.R. 1, the Tax Cuts and Jobs Act, after Chairman Brady’s Managers Amendment was accepted on a party-line 24-16 vote. The final version that passed the committee removed Section 3801—which would have virtually eliminated the market for NQDC plans and had broad impacts on all deferred compensation.

Agree. And with this being the second challenge in four years, perhaps only a matter of time that something happens. No one knows what. With December being deferral election month - tough to recommend someone put more of their compensation at risk. I'm advocating sponsors and participants use this time of awareness to explore options to accomplish objectives outside the NQDC regulations. In some areas, better alternatives are available even if nothing happens ever.

I remember many years ago a court case clarified it must be a select group of, not all. Your solution is the after-tax plan option. What type of benefit objective - voluntary employee deferral, employer defined contribution SERP, employer defined benefit SERP? There are after-tax based alternatives that eliminate your issues – available to anyone or any employee earning $75,000+ and do not perform “blue-collar” roles. Rather than the traditional 409A structure of an employer creating unsecured promises to select employees and then informally funding with COLI, it makes more sense today for both the employee and the employer to split the funding – the employee owns the COLI priced policy as the lifelong benefit delivery vehicle and the employer separately buys COLI for traditional cost-recovery / key-person objectives. The problem with 409A is it’s a temporary program – at some time the participant will be paid out and then have to manage the distributions on a taxable basis. As an individual - Does it make more sense to give away 25%-40% of your investment gains to taxes or 5%-10% of your gains to insurance expenses while receiving added financial protection (terminal illness and death)? This is why employers are turning to after-tax plans, better participant value, and 409A sponsors are making participants aware of their after-tax option for their personal savings and 409A distributions – executive financial wellness education. The after-tax plan typically starts with participant education of the COLI product’s role as a more efficient personal investment, cash, tax and risk management container for saving outside a tax-qualified plan and how the employer may be making added contributions for DC or DB SERP purposes. First determine how much contribution capacity the executive wants then layer the employer contributions. Lastly, the limiting factor for after-tax plans is insurability. Don’t jump to simplified or guaranteed issue as these are executive owned. Keep it fully underwritten medically issued – that 20 minute paramed translates into 15%-20% greater lifetime value to the healthy participants. Your physician group made this after-tax option possible by increasing the life expectancy of highly compensated “white-collar” risks – their risk rate has significantly lower impact on investment returns than taxes. And the longer you are expected to live, the greater the benefit of cost-shifting to the after-tax option.

To follow-up on XTitan’s comment – 409A already has minimal value in the voluntary deferral area. Today there are secure / personally-owned, institutionally-priced, after-tax alternatives to 409A pre-tax NQDC that provide individuals greater lifetime net spendable value, greater tax advantages, creditor protections and residual value to heirs. There is no reason for HCE’s to put paychecks at risk of employer bankruptcy, 20% penalties or bracket creep on distributions if not already in the highest tax bracket. One of the benefits of the proposed tax rates / brackets is providing middle management 409A participants facing the bracket creep problem an opportunity to get out even. The tax reform proposal provides an opportunity to review the practical value of using 409A to accomplish employer and personal planning objectives relative to today’s alternatives. FINRA in 2013 implemented regulations for preparing the financial analysis / hypothetical illustrations of different tax and pricing structures for such comparisons.

You bring up great risks. I would add the employer making poor fund choices if a variable policy. One option I've seen is the benefit tied to the as-sold illustration used to sell the benefit to the executive and policy to the employer. That way the participant is insulated from all those risks and the monkey is on the employer's back to properly fund the policy.

The Pangburn Group in New Roads, LA.

As a recordkeeper / administrator of these types of plans, a few comments / views of plans I've seen. Remember contributions for any plan can comprise (1) employee, (2) employer subject to vesting schedule and (3) employer not subject to the vesting schedule. Employer can be making contributions from an incentive program subject to vesting and regular bonus contributions to provide all class members $X amount of death benefits. Recordkeeper needs to have capacity to track all three as employee has a right to their money / vested amounts at all times. Check with the insurance company of how they handle employer repayment security. Most suggest the employer has a collateral assignment that can be exercised if the employee does not repay employer within X-days of termination. A few will honor a springing assignment provision in the REBA providing the employer this one-time loan provision. Remember, insurance company will need / want to review the Agreement in advance. Many employers take the deduction / add bonus comp to the employee when they make contributions. If the employee does not satisfy the vesting schedule, un-vested repayments are taxable income back to the employer. Employee gets no deduction for their repayment - is SOL. Employer is communicating this tax effect as an added handcuff to promote key employee retention.

You may also want to remind the client one of the reasons the Roth was created - addressing the planning needs of successful people more likely to be deferring into a higher tax rate with pre-tax savings plans. Key middle-management employees most at risk of this bracket creep risk. Pre-tax accounts are great for those that don't expect to attain retirement income objectives. Otherwise, all things being equal, the client wants to promote its support of the needs of key employees with providing a comparable Roth match.

Contact the agent or insurance company. They have split dollar administration / marketing support pieces that detail their rates per $1,000 of economic benefit at all ages for use by plan administrators.

Contact the agent or insurance company. They have split dollar administration / marketing support pieces that detail their rates per $1,000 of economic benefit at all ages for use by plan administrators.

Austin – An alternative / added design consideration, if the executive(s) are healthy, is taking the plan after-tax through an executive owned institutional life insurance (ILI) funded program with a REBA (Restricted Employee Bonus Agreement) for the match / vesting. Executive contribution and match go into the policy. Policy has 98% to 105% cash surrender value to premium in year 1 so no liquidity / nonqualifed 409A distribution penalty exposure. Executive controls the amount of policy contribution capacity, investment allocation and beneficiary designation. Employer has a collateral assignment to secure its unvested match repayment on executive termination of employment. Executive has access to their cash without the 20% 409A penalty exposure. Many executives choose an increased policy contribution capacity to accommodate moving personal funds from taxable brokerage accounts. The value advantage to the executive is the cost-of-insurance has less impact on investment gains than taxes – why corporation and banks invest in ILI (COLI/BOLI). For executives already in the maximum tax brackets – short-term the plan is net cash neutral plus they have some added financial protection. For executives not in the maximum tax brackets – the plan can result in higher net cash as the executive is not risking bracket creep on 409A distributions plus they have the added financial protection. So, not a “life insurance” program, but a 7702 based after-tax investment alternative employers are using as a 409A complement, or alternative where 409A is not a fit for the employer or the executive. I say 409A complement as many employers are making their 409A participants aware of this personal access to ILI and many enroll today to commence creating a container to accommodate the after-tax value of their 409A distributions for life-after-career cash and risk management.

Yes - Endorsement Method Split Dollar. Employer owned policy. Employer is endorsing a percent of the death benefit, in this case 100%, to the employee to designate the beneficiary. Employee is receiving an Economic Benefit and should be charged an imputed income accordingly.

As a HCE option there is The STAR Plan (Strategic Talent Appreciation and Recognition) - an individual after-tax institiutional life insurance (ILI) funded investment and risk management program - same ILI products large employers invest through for NQDC (COLI) but made available for personal ownership. By 2002 the ILI products funding NQDC had financially evolved into a higher HCE value than a NQDC plan. So in 2002 we moved the ILI plan sponsor role from the employer to our ILI TPA firm - why STAR is available to all HCE's. Employer is merely assisting in HCE awareness of their qualification to join our program and validating role and compensation for ILI underwriting qualification. Hence, a pat-on-the-back and baton pass. No employer costs, liabilities, regulatory or HR issues. The HCE chooses the issuer, contribution capacity, asset allocation, etc, etc. And if the employer wants to make contributions (match, incentive, etc) they can via Bonus 162 with an optional REBA (Restricted Employee Bonus Arrangement) to provide a vesting schedule on the bonus. STAR serves as (1) a savings complement to the tax-qualified plan / alternative to taxable fund investing and (2) for those in a NQDC plan a distribution management container for life-after-career.

My understanding is distributions go through the employer's payroll system as these are w-2 wages.

It sounds like you have the group benefits and separately a Bonus 162 Plan for a key employee - deductible to employer and taxable to the key employee ... just like any cash bonus to an employee.

You can do a vested Bonus 162 plan funded with institutionally-priced life insurance - employer or co-contributory design. Only requirements would be the individuals are healthy, perform "white-collar" or "gray-collar" roles and earn over $50,000. We've been sponsoring / administering these types of plans since 2002 as an alternative to NQDC / 409A for firms where the Unsecured Creditor nature of NQ plans is not a fit, or the participants would not qualify for Top Hat.

My background is NQ plan administration, not an attorney, but every NQ-DC plan document I've seen the past 25 years includes a crediting section. A link to external financial instruments or annually declared crediting rate specified by the plan sponsor ... which I would think could be 0% for your purposes.

I will infer from the lack of response that you agree this is a "grey" area. As a FYI - during our migration in 2002 from Nonqualified Deferred Comp (today 409A) design and administration to The STAR Plan we tool a different approach - moving the ILI plan sponsor role from the employer to an external ILI administration firm. So, not a Voluntary Benefit in the traditional / regulatory sense, but a Financial Wellness awareness alternative not available in the employee benefits, executive benefits or retail financial planning world. Bottom Line - the career and life choices of higher and highly compensated employees opened a different door to access Personal "Parity" Restoration. To learn more - visit the ValleyViewConsultants.com web site and click "The VVC Story" menu tab - The Evolution of "Parity" Restoration from and "Executive Benefit" to a Personal Planning "Choice". Feel free to contact me directly with any questions. Have a great holiday.

Employer sponsored voluntary executive access to Institutionally-priced Life Insurance (ILI, COLI, SALI) serving as a 409A complement or supplemental Roth is gaining in popularity. Access is typically restricted to same "select group" as nonqualified deferred comp / 409A plans, or more restricted. Most institutional COLI issuers now allow their policies sold in this manner, a multi-life after-tax employee funded alternative to pre-tax nonqualified deferred comp funding, but don't provide employer overviews of how to do this on an ERISA compliant manner like they do when buying COLI to informally fund 409A plan. I'm looking for a reference piece on how discriminatory an employer can be sponsoring a voluntary life insurance benefit and the required documentation. Also ... some have expressed ERISA concerns since these plans / policies are designed for (1) retirement cash / fund management with (2) supplemental protection as opposed to traditional retail / group voluntary life insurance plans designed for (1) protection with (2) supplemental cash accumulation opportunities. Would appreciate any opinions on employer regulatory / ERISA exposures sponsoring a voluntary life insurance plan to fund retirement.