By providing funding for an executive-owned life insurance policy, split dollar loan arrangements:

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4 Split dollar loan arrangements allow an Employer to pay premiums on a life insurance policy owned by an Executive while retaining the right to be reimbursed for those premium payments. Advances of premiums are treated as loans. By providing funding for an executive-owned life insurance policy, split dollar loan arrangements: Can help create a source of potential supplemental retirement income for the Executive to the extent cash values remain following repayment of the employer loan 4

5 Provide survivor death benefits which are not subject to income taxes 5

6 Avoid exposing the life insurance policy to the claims of creditors of the Employer 6

7 The Department of Labor generally considers split dollar arrangements that provide death benefits to an employee s beneficiaries as welfare benefit plans for purposes of ERISA, and therefore, subject to parts 1, 4 and 5 of Title I of ERISA. A split dollar plan designed as a Top Hat plan is exempt from part 1 of Title I. Arguably, a split dollar loan arrangement could be considered a pension benefit plan under ERISA as well. If such an arrangement were considered a pension benefit plan but is designed as a Top Hat plan, it would be exempt from parts 2, 3 and 4 of Title I of ERISA, and from most of the requirements of part 1. 7

8 And provide the Employer with an opportunity to recover the money it advances to pay premiums. 8

9 A split dollar loan is an arrangement where an employer helps to provide an executive with retirement and death benefits by providing the funding for the ownership of a life insurance policy. The employer pays premiums on a life insurance policy owned by the executive, but retains a collateral assignment interest in the policy equal to the sum of the premiums it has advanced. The premium advances are treated by the IRS as loans and the executive pays taxes on the interest that is imputed on the loans. (Alternatively, the executive can pay interest to the employer calculated in accordance with the split-dollar regulations.) When the Executive retires, the Employer may recover its premiums from the Executive. If the Employer instead forgives the loans, the amount forgiven will be treated as a taxable bonus to the Executive. If the Employer and Executive enter into the loan arrangement with the expectation that it will not be repaid, the IRS could seek to treat the amounts as having been includible in income at the time the loan arrangement was executed. Such treatment could give rise to interest and/or penalties. Any remaining policy values (to the extent the executive uses policy values to repay the loan) are then available to the Executive as a potential source of supplemental retirement income. 9

10 A split dollar loan arrangement can be implemented with the following steps: A split dollar loan arrangement can be implemented with the following steps: 1. The company identifies a need to retain and reward a key executive. The company and 1. the executive The company agree identifies that personal a need life to insurance retain and protection reward a and key the executive. related cash The value company and the executive accumulations agree that personal are important life insurance components protection of the and executive s the related overall cash value compensation accumulations package. are important components of the executive s overall compensation package. The parties execute a split dollar agreement The setting parties forth execute their rights a split and dollar obligations. agreement setting forth their rights and obligations. 10

11 2. The executive acquires a cash value life insurance policy on his or her life and executes a collateral assignment with Voya Life Companies, indicating the policy rights reserved to the employer. 11

12 3. The company makes premium payments on the policy. The premium payments are treated as advances or below-market loans from the 3.The company company makes to the premium executive; payments on the policy. Each year, the executive is taxed under 7872 on the amount of interest imputed by The premium payments are treated as advances or below-market loans from the company the IRS on the sum of premiums that have been advanced; to the executive; The company retains a collateral assignment interest in the policy equal to the sum of Each year, premiums the executive advanced. is taxed under 7872 on the amount of interest imputed by the IRS on the sum of premiums that have been advanced; The company retains a collateral assignment interest in the policy equal to the sum of premiums advanced. 12

13 4. At retirement, the company either recovers its premiums from the executive or releases its interest in premium advances by treating the split dollar agreement termination as a retirement bonus to the executive. If the company chooses to release its interest in the premiums advanced, this amount is treated as a taxable bonus to the executive and as a deductible expense to the company (assuming the bonus is within reasonable compensation limits); After termination of the split dollar loan arrangement, the policy s cash values are available to the executive on a tax-preferred basis as a potential source of retirement income. 13

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16 Thank you. 16