CA/NV CUL | Snake Oil Or Liquid Gold? A Board’s Guide To Due Diligence For Loan Regime Split Dollar

Jim and Kirk wrote a piece for the California and Nevada Credit Union Leagues on loan regime split dollar. PDF

CU Times | Board Guide to Loan Regime Split Dollar

Kirk writing at CU Times:

Is loan regime split dollar snake oil or liquid gold? How is a board to know? If it works, LRSD is a powerful tool for compensating key executives and preserving credit union assets. If it doesn’t work, the costs to the credit union and the participating executives are high.

The purported advantages over traditional nonqualified deferred compensation plans have led directors to consider LSRD. But boards can find LRSD due diligence daunting. However, like eating the proverbial elephant, the diligence due is more easily pursued in a series of small questions.

CU Business | Loan Regime Split Dollar

Kirk wrote an article on loan regime split dollar with Chris Fazzi.

Not long ago, shouting “split dollar life insurance” was a sure way to empty a crowded room of credit union directors and executives. However, thanks to law clarifications, product enhancement, the current low interest environment, and administration improvements, loan regime split dollar is now attracting positive board and executive attention.

Download the PDF

Repeat Lesson from Great-grandfathered 457(f) Plans

Individuals who participated in a tax-exempt organization's nonqualified deferred compensation plan on August 16, 1986, are not subject to 457(f). Rather, they are taxed on basic constructive receipt principles, the same as participants in plans sponsored by taxable employers. That "great-grandfathered" status remains so long as the plan's "fixed formula" is not changed. Consistent with prior practice, the IRS just published another private letter ruling concluding that a reduction in the benefit formula is not a change in the formula that forfeits great-grandfathering.

Given the limited (and dwindling) number of great-grandfathered plans, the more important impact of the ruling is its confirmation that reducing benefits is generally not treated as a change in benefits. This is important for law and regulatory changes that, like the Tax Reform Act of 1986, are not express about the issue. For example, the 2003 split dollar regulations give nearly no guidance on what constitutes a "material modification" that forfeits grandfathering. This new private ruling gives additional analogous support for reducing split dollar benefits without forfeiting grandfathering and subjecting the plan to the new regulations. (Compare 409A, which specifically states that a reduction in benefits is not a material modification that forfeits grandfathering.)