Connecticut Mutual Life Insurance Company and Consolidated Subsidiaries - Page 11

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          II as an asset.  Thereafter, petitioner reported the VEBA II                
          trust as an admitted asset on its annual statements.  The change            
          in petitioner's annual statement reporting resulted from its                
          desire to change to an accounting practice similar to that                  
          adopted in the Statement of Financial Accounting Standards No.              
          87.                                                                         

          VEBA III                                                                    

               Subsequent to the establishment of the holiday pay plan and            
          the VEBA II trust, petitioner established a third VEBA trust                
          (VEBA III) in order to fund its wellness program and health                 
          services plans.  Petitioner contributed $10 million to VEBA III             
          in 1986 but claimed no Federal income tax deduction in the year             
          of contribution.8  In 1991 and 1992, petitioner liquidated VEBA             
          III because of expense problems and capital and surplus                     
          management considerations.  Petitioner used the funds from VEBA             
          III to pay employee benefits other than those provided under the            
          wellness and health services plans.9  Over $1 million, for                  
          instance, was used to fund vacation pay for petitioner's                    
          employees.  By using the assets of VEBA III to pay employee                 
          benefit expenses, petitioner's expenses for the year were                   
          reduced, and petitioner was able to maintain surplus growth.                

               8See infra p. 22.                                                      
               9Petitioner did not terminate these plans; they remained               
          intact but were unfunded.                                                   




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