Insurance of nonqualified benefits from bankrupcy of sponsor-available

[AndyH]

Somebody told me that AIG used to provide this product, but will no longer provide it. Does anyone else?

[GBurns]

A vast number of NQDC plans use life insurance or annuities which are all insured products. The protection from bankruptcy is a function of the plan design (Trust structure, ownership rights etc) not of the underlying products. You might want to consider getting advice from a competent person in the industry. Try Clarke Bardes at www.crg.comor www.crgworld.com

[AndyH]

I don't want advice. I'm looking for something quite specific.

My question is not about the investment product.

It is about a product which supposedly insured a SERP participant from loss of entitlement due to bankrupcy of the SERP sponsor.

I am told that there was at least one such product which will no longer be available. I am looking for another such product, not a life insurance investment or trust structure. Those items address different issues.

[Guest EAKarno]

My understanding is there is no longer any carrier writing indemnity policies which were once offered to insure payment of nonqualified plan benefits. Security from bankruptcy, however, may still be possible through proper plan design, and at less cost than the very costly indemnity insurance products.

[AndyH]

Thank you. That does seem to resolve the specific question that I needed to address.

Having resolved that, I would welcome any additional general information how plan design would help in the event of bankrupcy. I know little of such matters, other than I've been told that a rabbi trust helps dedicate assets to the particular SERP debt, but does not help in the event of insolvency.

[mbozek]

The basic requirement of nonqualified deferred compensation since 1942 has been to require that the plan assets must be subject to the claims of the employer's creditors in order to avoid taxation of the employee's vested interest in the plan. There are plenty of products offerred to employers on the theory that the plan assets will not be subject to the claims of the employer's creditors (some even come with a tax "opinion" full of caveats or qualifications). Some are designed so that the plan assets become a vested and separate interest when the employer's credit rating or or stockholder equity declines below a certain level. Some have names such as the rabbicular trust. The IRS has not issued any plrs on these products and continues to require that the plan assets must remain subject to the claims of the employer's creditors in order for the employees to avoid taxation. Obviously if the assets of the plan can not be claimed by the creditors because of a intervening triggering event then there is no risk of forfeiture and the employees will be taxed on the vested interest. The question is whether the employer can design a plan so that the risk of forfeiture is qualified so as to be too remote to occur but still possible enough so as to to avoid taxation on the employees.

[Kirk Maldonado]

My recollection is that the employee must buy the insurance policy out of his or her own funds or the arrangement does not work.