Winn-Dixie Stores, Inc. and Subsidiaries - Page 7




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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