Benefits for Non-Compensated Directors

[waid10]

I have a nonprofit client that permits non-compensated directors on its Board to purchase up to $50K of life insurance through its group plan. Is this permissible? I thought that only "employees" could do this.

Does anyone know what statute applies to benefits for non-compensated directors on the board?

Are there are good articles on benefits for non-profit directors?

Thanks for any help you can provide.

[Ron Snyder]

IRC Section 401(a)(2) restricts participation in company-sponsored qualified retirement plans to employees. It does not apply to welfare benefits.

Section 79 generally applies to group-term life insurance arrangements. While there are non-discrimination rules for such plans, such an arrangement would not appear to violate them.

Moreover, if the non-profit entity is also tax-exempt, failure to comply with a non-discrimination of the IRC (for other than a qualified retirement plan) would result in loss of deduction, a moot point.

[GBurns]

The plan was most likely set up for employees. If the Plan Document restricts participation to employees and former employees only, then participation ny Directors (whether compensated or not) would seem to be impermissible. Check the wording in the PD.

The insurance contract also should define eligible participants and most likely Directors are not eligible. Allowing participation of ineligible persons could create a problem. Check the Master Policy.

[waid10]

Yes, I think the plan was initially set up for employees, so I believe participation by non-employee directors is impermissible.

The client wants to find a way to offer health insurance under its group plan (or some other method) to these directors. Does anyone have any thoughts?

I spoke with several insurers about a separate plan just for non-employee directors, and all of them said they could not (or would not) design/sell a plan like that.

[401 Chaos]

I have never had occassion to explore these issues from a benefits perspective but find the nonprofit's efforts unusual to say the least. From a tax-exempt and state nonprofit corporation law perspective, it seems to me that providing such benefits could possibly shift the directors from classification as noncompensated to compensated or otherwise personally benefiting from their service. Such a change could possibly impact or destroy potential state charitable immunity and indemnfication rights of directors as well as potentially require additional IRS disclosures and accountings if the group is a charitable organization.