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A broad-based COLI Pool applies the same principle in
ways that are effective under current law. But, where
each of the existing policies was designed to fund a
specific executive's benefit under the MSP, the Pool
that we have illustrated would cover 38,000 employees
at all levels of Winn-Dixie's workforce.
With respect to obtaining the employees' consent to purchase the
COLI policies on their lives, the memorandum stated:
We usually recommend that a company adopt or expand
employee death benefits when installing a COLI Pool.
This provides an immediate and meaningful benefit for
employees, and it helps to provide a logic and
incentive for obtaining employees' consent to being
insured. The benefit may depend on the size of the
pool and the amount of the insurance purchased on each
employee. A death benefit in the range of $5,000 to
$15,000 is typical for the Pools presented here. After
an employee leaves the company, the benefit is normally
reduced or discontinued. With normal rates of
retirement and attrition, only a small proportion of
the participants will receive a benefit. As a result,
the cost of providing the benefit is insignificant.
The memorandum also expressed an opinion on the tax issues
raised by the proposed COLI pool, the legislative status of
leveraged COLI, and exit strategies available to petitioner in
the event that the tax laws change:
What tax issues are raised by the COLI Pool?
Deductibility of Interest. Because the COLI Pool
involves systematic borrowing of increases in the
policies' cash value, a deduction for interest to carry
policy loans is allowed only if at least four of the
first seven annual premiums are paid in cash. In
addition, a deduction is allowed for interest on only
the first $50,000 debt to carry policies on any one
employee. The COLI Pool proposed here is designed to
satisfy the 4-out-of-7 rule, and the financial
illustrations take into account the $50,000 cap on
loans for which interest deductions are allowed.
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Last modified: May 25, 2011