Split-Dollar - NQDC

[Guest tintree73]

New financial advisor wants to put a program in place for one employee (SD insurace) place while the employee stays w/ the company).

the company is supposed to lend money to the employee for the premim deposit where the employee is the owner of a split dollar (SD) insurance benefit.

If the employee dies, the employee names a beneficiary who gets a tax free death benefit and the company will get their deposits back.

He says the employee will get a tax free gain at separation from service (for full length of agreement).

But if the employee separates prior to the date (or poor performance) the company will take back its contributions.

The agreement is supposed to end at the rollout date.

The employee will pay tax on the below market interest rates on the loan.

He says the company will have a claim to all money set aside w/in the SD plan.

Then he says to do this we need to complete a new NQDC agreement promising the employee money in year 21 if he is still with the company at that time.

If employee quits after year 21 - he gets 400,000 (not directly tied to the SD amount).

Option to add: if the company wants to let the employee also defer additional money, he could get even more at year 21.

to me (with limited knowledge) it sounds like a loan regime split dollar is informally funding the NQDC plan. the first part is the SD program that will provide financial backing while the employee is actively employed by the employer with a golden handcuff - and the second part of it sounds like a serp agreement.

How would this be set up? SERP? NQDC Top Hat? Just a SD agreement and then a SERP down the road (or all of them now). Any 409A problems-I know there are issues with golden parachutes, but I'm not sure re golden handcuffs?

Just seems so different than anything I have encountered that my head is spinning a bit.

[mbozek]

You need to retain a qualified tax advisor and pay for his advice on the tax issues you raised.

[Ron Snyder]

I agree with Mbozek on this one. This is obviously outside your area of expertise, and there are issues beyond the ones you raise. Find an expert. Note: most insurance companies (who routinely set up split dollar arrangements in the past) have disclaimed any responsibility for compliance with the new deferred compensation rules, so they will not help.

Of course, once your client goes to a tax attorney, the real question is "Why do I need the life insurance?"

[Guest tintree73]

Vebaguru - that is exactly what happened! Thanks to everyone for the insight!