BIOLI 101: New Text Offered on Bank-Owned Life Insurance

Bank-Owned Life Insurance (BOLI) is becoming an increasingly popular means to recover employee benefits and support shareholder value. Almost half of U.S. bank holding companies use bank-owned life insurance, according to the FDIC.

A complex undertaking, it also drives niche in the consulting industry. The American College Press, a non-profit educational institution for insurance and finance professionals, has published a book to help sort it all out. Entitled Separate Account Bank Owned Life Insurance, The Theory and Practice, the text is offered for $49.95 plus shipping at http://www.TheAmericanCollege.edu/tacpress/monograph.asp.

Written by Tom Wamberg, Chairman and CEO of Clark Consulting, the book is intended to help financial professionals better understand how BOLI works, and why the practice is on the rise, a statement from the American College says. Clark Consulting works with companies on employee compensations, benefits and plan funding.

Meanwhile, Mike Schaefer, a Clark analyst, published a short paper late in 2006 highlighting recent federal legislation regarding employer-owned life insurance.

It says that Congress began an evaluation of employer-owned life insurance programs in 2003. The result in August 2006 was affirmation of bank-owned life insurance, as well as corporate-owned life insurance, both of which were codified in the Pension Protection Act on August 17.

The measure was a seen as a victory for banks and their employees as it also maintained the income-tax free treatment of BOLI death benefit, Schaefer wrote.

The Act enabled employers to receive BOLI death benefits tax-free when the insured directors or “highly compensated” employees are covered and at their consent. Most banks were already getting consent to comply with state regulations, Schaefer’s paper says, but Congress made it federal law by essentially codifying industry best practices in the Internal Revenue Code, §101(j).

Schaefer writes that compliance with the new law requires focus on three fronts: notice and consent; permissible insureds; reporting and record keeping.

When it comes to notice and consent, banks that already follow industry best practices will find that the major change is the requirement to disclose the maximum face amount of coverage, Schaefer writes.

As for who can be insured, “highly compensated” means:
• One of the five highest-paid officers
• Among the highest paid 35 percent of all employees
• For BOLI contracts entered into during 2006, had received 2005 compensation in excess of $95,000 (adjusted in the future for inflation)

In the area of record keeping, Schaefer writes that the new law requires banks to file an annual return with the IRS for BOLI contracts issued after August 17 showing, among other things, the number of employees insured and the total amount of insurance in force under these contracts at the end of the year. Employers are also required to maintain the records necessary to determine whether the requirements of §101(j) have been met.

Wamberg’s book obviously goes into greater detail. It is intended to help financial professionals navigate the sea of decisions that must be made when purchasing a BOLI plan.

“Tom’s enormous intellect and expertise makes this complex subject easily understandable to readers,” said Larry Barton, Ph.D., president and CEO of The American College. “Any financial services professional who would like to know more about bank-owned life insurance would find this book beneficial.”

Wamberg’s previous activities include president of the Association for Advanced Life Underwriting, president of the 25 Million Dollar Forum, chairman of the Legislative Task Force and Nonqualified Benefit Plan Committee.


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