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Non-Qualified Deferred Compensation Plans
Non-Qualified Deferred Compensation (NQDC) Plans operate much differently than other employee benefit plans. There are numerous considerations for a plan sponsor during the design and implementation phase. Participant balances are reflected as a liability on the organization’s balance sheet, are “at risk” in the event of bankruptcy, and deferral and distribution elections are governed by IRC 409A. Furthermore, informally funding plan liabilities can be a challenging exercise as there are tax and liquidity concerns that must be addressed
Insurance Companies face unique challenges when financing employee benefit costs. To address this problem many insurance companies purchase life insurance on their key employees to help recover these costs as well as hedge against a potential economic loss of an employee. ICOLI is an accepted and longstanding practice with over $30 billion currently held on over 100 insurance company balance sheets.
Banks in the United States are searching for creative solutions to enhance tax-effective yield on assets as well as fund their ever-increasing employee benefit cost. To address this problem many banks purchase life insurance on their key employees to help recover these costs as well as hedge against a potential economic loss of an employee. BOLI (Bank-Owned Life Insurance) is a well-established and accepted asset that provides banks a tax-efficient asset to offset some of the cost of employee benefits.