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Features of the InsMark Loan-Based Deferred Compensation
(also known as "401(k) Look-A-Like Plan")

Important Note: All aspects of Loan-Based Deferred Compensation must be reviewed and approved by a client’s legal and tax counsel before the arrangement is utilized for any purpose.

Loan-Based Deferred Compensation (“LB-DC”) (cast between Employers and Executives)

  • LB-DC complies with the Final Split Dollar Regulations issued in September 2003.
  • LB-DC obtains its illustration data through an electronic link to insurance company’s illustration systems via InsMark’s proprietary Button File technology.
  • With LB-DC, the employer’s funding is provided via an Executive’s compensation adjustment.

    Note: In many cases, the plan results in a negative charge to earnings for the sponsoring employer. (A negative charge to earnings is the same as a credit to earnings.)
  • In addition to executive-owned policy values, LB-DC can include an illustration of a severance benefit that refunds the Executive’s compensation adjustment (including a variation that complies with IRC Section 457(f) if a tax exempt organization is involved).

  • LB-DC illustrates loans from Employer to covered Executive for policy premiums.
  • LB-DC illustrates loan interest at least at the Applicable Federal Rate established under IRC Sections 7872 and 1274(d).

    Note: Use of interest-bearing loans (as opposed to interest-free loans) eliminates any impact from the Original Issue Discount (“OID”) rules of IRC Sections 1271-1275. When applicable, these rules require the Executive to include in income the difference between the face amount of each loan from the Employer and the present value of that loan discounted at the Applicable Federal Rate. Frequently, this can result in taxable income equal to 60% to 70% of each loan.


    Note: Upon specific approval from the licensed insurance company, LB-DC can be configured to illustrate interest bearing demand loans.
  • LB-DC will not produce an illustration dated in any month in which the user has not first visited InsMark’s website to download the Applicable Federal Rates in effect for that month.
  • LB-DC can illustrate bonuses from Employer to Executive to provide funds for loan interest using a single bonus, gross-up bonus, or design-your-own bonus. LB-DC can also illustrate repayment of the Employer’s loans from policy loans. The user can designate any combination of these features.

    Note: Even if offset by a bonus, so long as loan interest due to the Employer is actually paid by the Executive (not deemed paid as is the case with a below-market loan), deemed dividend distributions are avoided for a participating Shareholder-Executive.
  • LB-DC illustrations include a multi-page Preface that is illustration-specific in its details.
  • LB-DC presents numerical data in Summary and Employer/Executive-specific formats.
  • LB-DC has special numerical columns in the reports that illustrate policy loans funding retirement income for the Executive.
  • LB-DC contains InsMark’s unique InsScribe® System which automatically generates illustration-specific Flow Charts and Graphs.
  • LB-DC includes a comprehensive PowerPoint show useful for producer and adviser education.
  • LB-DC includes a comprehensive electronic Guide to Marketing.
  • LB-DC includes significant specimen documents including promissory notes and collateral assignments both of which contain reassignment provisions should the Employer wish to obtain loans from another source (e.g., a bank) to fund the plan.
  • LB-DC blocks the illustration of a modified endowment contract as a MEC securing a loan produces taxable income to the policy owner to the extent of any gain in the policy (realized or unrealized).

    Note: The separately-licensed InsMark Loan-Based Split Dollar System (cast between Employers and Executives) is a high-end sister product to the InsMark Loan-Based Deferred Compensation System. It contains two core illustration modules, Loan-Based Split Dollar and Loan-Based Private Split Dollar.

Loan-Based Split Dollar (“LB-SD”):

LB-SD provides benefits similar to Loan-Based Deferred Compensation but requires no compensation adjustment by the Executive. It is a marvelous replacement strategy for the equity split dollar arrangements no longer available due to the Final Split Dollar Regulations.

LB-SD complies with the Final Split Dollar Regulations issued in September 2003.


Loan-Based Private Split Dollar (“LB-PSD”):

LB-PSD is designed for use between wealthy parents and irrevocable trusts formed on behalf of their children. Utilizing a so-called “defective” grantor trust as policy owner along with guidance from IRC Sections 671, 675, IRS Reg. 1.671-2(c), Rev. Rul. 85-13, and PLR 9809032, LB-PSD features grantor loans that allow virtually unlimited funding of irrevocable trusts.

LB-PSD complies with the Final Split Dollar Regulations issued in September 2003.

Important Notes

  1. All aspects of the Loan-Based Deferred Compensation System and the InsMark Loan-Based Split Dollar System must be reviewed and approved by a client’s legal and tax counsel before they are utilized for any purpose.

  2. Due to the Sarbanes-Oxley Act of 2002, loan-funded life insurance plans cannot be used by public companies. Although there is an intense effort to resolve this prohibition, for the present, only private companies should consider using loan-funded arrangements.
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