- 8 -
* * * * * * *
What is the legislative status of leveraged COLI?
In the past few years, Rep. Barbara Kennelly (D-Conn.)
and Senator David Pryor (D-Ark.) have introduced bills
that would impose new restrictions on the deductibility
of interest paid on loans from COLI policies. No bill
is now pending, but it is possible that one will be
introduced in the future. Kennelly/Pryor, as the last
such bill was generally known, was written with the
participation and support of the National Association
of Life Underwriters, and, if a similar bill does
become law, we do not believe the financial advantages
of Winn-Dixie's COLI Pool would be seriously
compromised.
History suggests that specific changes in the law that
would address leveraged COLI would also allow
grandfathering of existing policies. Past changes, for
example, imposition of the $50,000 loan cap, have
grandfathered existing policies, and the large number
of major corporations that have created COLI pools is a
significant political constituency. Of course,
grandfathering cannot be assumed, and we have,
therefore, kept the consequences of exit very much in
mind in developing strategies for Winn-Dixie.
What exit strategies are available if the tax laws or
Winn-Dixie's tax position changes?
A COLI Pool can become a financial burden if the tax
arbitrage in the program loses its attractiveness.
This can occur, for example, if Winn-Dixie's marginal
tax rate on interest deductions becomes low and remains
low, if Winn-Dixie becomes an alternative minimum
taxpayer, or if the intended premium payment strategy
becomes invalid through regulation. Likewise, Winn-
Dixie's appetite for interest expense may be satisfied
for reasons unrelated to deductibility.
* * * * * * *
If it becomes necessary or useful to terminate the COLI
Pool, or to discontinue further borrowing, Winn-Dixie
will be able to do so without significant adverse
effect. The policies can be put on a "paid-up" basis,
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011