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Nonqualified
Deferred Compensation and COLI
NQDC
funding restrictions.
Top executives now face tax penalties on any NQDC funded while the company’s
qualified pension plan is not adequately funded or the sponsor is bankrupt. This
provision applies immediately to any asset transfers occurring after the date of
enactment and applies on a controlled-group basis.
The funding restrictions apply to the top five “covered employees” under Code section 162(m) ($1 million deduction cap), plus any other executive officers. Some former executives also are affected.
Corporate-owned life insurance. Death benefits exceeding premiums and other amounts paid for the corporate-owned life insurance (COLI) contract are taxable income to the employer, unless the insured was notified of and consented to the coverage and (a) the insured was a director or “highly compensated employee” when the contract was purchased, (b) the insured was an employee within 12 months before death, or (c) the benefits are paid to the insured’s heirs or used to purchase an equity interest in the employer from the heirs. In general, the provision applies to COLI contracts issued or materially changed after the date of enactment.