Increased Salary as an Alternative to Group Term Life Insurance
研究了当公司团体定期寿险计划不符合IRC第79条免税条件时，通过加薪让员工自行购买等额保险的替代方案，并提供了判断何时加薪更优及节省程度的计算方法。
When a company qualifies its group term life insurance (GTLI) plan under Section 79 of the Internal Revenue Code, employees are allowed to exclude from gross income the premiums on the first $50,000 of insurance paid by their employers. All GTLI policies do not qualify for this excludable treatment. Several conditions must first be met, and, for small corporations, the cost of compliance may render the potential benefits prohibitively expensive. A company alternative that is available is to adjust the salaries of employees to enable them to acquire equivalent insurance outside the company. This paper examines the trade-offs available. Specifically, this paper offers a technique for determining when the increased salary alternative is better than a qualified GTLI plan and for establishing the degree of savings associated with the choice. When a company qualifies its group term life insurance plan (GTLI) under Section 79 of the Internal Revenue Code (IRC), employees are allowed to exclude from gross income the premiums paid on their behalf by their employers, limited to employer-paid premiums for the first $50,000 of insurance coverage. All GTLI policies, however, do not qualify for this treatment. Several conditions must first be met; one is that the policy does not discriminate in favor of employees with respect to eligibility and amount of benefits [3, sec. 79(d) (2)]. For small corporations (less than 10 employees), it may be difficult to provide evidence that a GTLI plan is non-discriminatory. Crumbley, Curatola, and Dickens (CCD) [1] proposed an alternative to *The authors gratefully acknowledge the helpful comments of anonymous reviewers. Anthony P. Curatola is an Associate Professor of Accounting at the Louisiana State University College of Business Administration. He earned a Ph.D. Degree in accounting at Texas A. & M. University. Dr. Curatola has published articles previously in many accounting and tax journals. Thomas L. Dickens is an Associate Professor of Accounting at Clemson University. He also earned a Ph.D. at Texas A. & M. University. A CPA and CMA, Dr. Dickens has published many articles in and served as an editor for numerous accounting and tax journals. Kent T. Fields is an Associate Professor at the Auburn University School of Accountancy. He also received his Ph.D. at Texas A. & M. University. A CPA and CMA, Dr. Fields has worked in industry as an auditor and systems analyst and has published articles in several business journals This content downloaded from 157.55.39.165 on Thu, 14 Jul 2016 05:13:28 UTC All use subject to http://about.jstor.org/terms 120 The Journal of Risk and Insurance employer-provided GTLI. Basically, they suggested that, in lieu of GTLI, the benefit take the form of increased direct salary compensation. This additional compensation could be utilized by the for participation in another group plan. Selection of this action would remove the incremental compensation from the statutory realm of Section 79, since employees would be required to pay federal income taxes and related employment taxes on the additional direct salary earnings. The proposed alternative was analyzed for its superiority to the adoption of a qualified GTLI plan. The analysis was limited to of $50,000 or less. In such plans the cost of term is not includable in the employee's gross income if the group plan qualifies under Section 79 [3, sec. 79(d)]. GTLI of more than $50,000 may qualify for Section 79 [3, sec. 79] treatment. If it does qualify, the must include the uniform premium cost of coverage in his or her gross income.1 This paper models the decision between the adoption of a corporate sponsored qualified GTLI plan and the adoption of purchased by the through salary adjustment. Furthermore, the model developed incorporates previously omitted factors such as in excess of $50,000, of more than one employee, and the effects of various marginal tax rates among employees. Qualifying Under IRC Section 79 The Code [3, sec. 79] allows employees to exclude from gross income GTLI premiums paid by employers. This exclusion is limited to insurance of $50,000 or less. In addition, the employer may deduct the full amount of the premiums paid for purposes of calculating federal income taxes. When exceeds $50,000, the uniform premium cost attributable to the excess is includable in the gross income of the employee. The conditions that must be met in order to qualify under the Code [3, sec. 79] are: * The policy provides a general death benefit that is excludable from gross income under IRC Section 101(a).2 [2, subdiv. l(a)(1)]. * The policy is provided to a group of employees. [2, subdiv. 1(a)(2)]. * The policy is carried, directly or indirectly, by the employer. [2, subdiv. 1 (a)(3)]. * The amount of insurance provided to each is computed under a formula that precludes individual selection. [2, subdiv. 1(a)(4)]. The formula called for in the last condition is required by Treasury Regulations [2, subdiv 1(a)(4)] to be one that is based on factors such as age, 'The uniform premium cost is a rate set forth in the Regulations [2, subdiv. 3(d)(2)]. The rates per $1,000 of excess premium are specified by age brackets having five-year intervals 21n general, the Code [3, sec. 101(a)] provides that gross income shall not include amounts received under a life insurance contract, provided those amounts are paid by reason of the death of the insured This content downloaded from 157.55.39.165 on Thu, 14 Jul 2016 05:13:28 UTC All use subject to http://about.jstor.org/terms Increased Salary as an Alternative 121 years of service, compensation, or position. In other words, the formula must be one that does not discriminate in favor of employees. It is possible to meet this fourth condition even if the amount of insurance provided is determined under a limited number of alternative schedules based on the amount that each elects to contribute. Treasury Regulations [2, subdiv. 1(g)] further stipulate that, if evidence of insurability provided to the insurer includes a physician's report, the in question is not counted under a formula that precludes individual selection. Therefore, the insurance is not GTLI for purposes of the Code [3, sec. 79]. This exclusion applies only to the extent that the amount of such insurance exceeds the amount of insurance that would be provided without evidence of individual insurability.3 Another condition, enacted as part of the Tax Equity and Fiscal Responsibility Act of 1982 [7, sec. 244(a)], and applicable to taxable years beginning after December 31, 1983, is the key employee discrimination requirements. According to the Code [3, sec. 79(d)], the income exclusion of a qualified plan will not apply to employees if the plan is discriminatory toward them. Discriminatory status can be avoided if employees are not preferred as to (i) their eligibility to participate, and (ii) the type and amount of benefits available to them [3, sec. 79(d)(2)]. For small corporations, defined here as those with fewer than ten full-time employees, it may be difficult to provide evidence that a policy is nondiscriminatory, especially when the company is comprised of three or four professionals and a few secretarial or clerical assistants. Small groups, therefore, have been excluded from Section 79 treatment unless they can satisfy a set of rather restrictive conditions which are discussed more fully in the appendix at the end of the paper.