IRC 1019j) is newly added section to the IRC by the Pension Protection Act of 2006 (aka COLI Best Practices). It provides clear definitions of eligible executives, requirements to obtain consent to insure, including notice to the person to be insured the maximum amount of insurance that may be purchased on his/her life, an acknowledgement that coverage could continue beyond employment, and an acknowledgement that the policyholder (corporation) will be beneficiary. If companies do not comply, policy death benefits will become taxable. Death benefits from COLI policies are excludable from an employer’s taxable income if the requirements of the statute are satisfied.
Eligible Employees – In most companies, this group of eligible insureds will be comprised of corporate directors and highly compensated employees. The term “highly compensated” refers to IRC §414(q), alternatively, if the employee is among the highest paid 35% of all employees per IRC §105(h), they may be eligible to be insured.