MetLife

New IRS Notice Related to Employer Owned Life Insurance

The Internal Revenue Service recently released Notice 2009-48 (effective June 15, 2009), providing much needed clarity regarding uncertainties created by 101(j) of the Internal Revenue Code. As you know this section, enacted as part of the COLI Best Practices Act (Pension Protection Act of 2006), removed the income tax-free treatment of death benefits from employer owned contracts unless certain requirements are met.  Its important to remember that the COLI Best Practices Act applies to ALL employer owned life insurance arrangements including: key person, entity buy-sell, deferred compensation and endorsement split-dollar arrangements.

Under 101(j), the employer must fulfill specific Notice requirements and an employee must Consent to coverage both now and after employment terminates, prior to a life insurance policy being issued. In addition, certain IRS annual reporting requirements and specified exceptions must be met related to the status of the employee.

This recent Notice is of special interest to owners of "employer owned" life insurance contracts and to life insurance companies that issue such contracts. Although the Notice provides extensive guidance in a Question and Answer format, this communication will highlight five areas most pertinent to your every day practice.

Please note there is a new MetLife Combined Employer and Employee Notice -Consent Acknowledgement form that will be required to issue all employer owned policies going forward. A Notice and Consent section is being added to the current Employer Acknowledgment form. This combined form represents an effort by Independent Distribution and Third Party Distribution to provide a united form across all channels while remaining current with the industry practice.