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Statutory Accounting Principles Working Group
Maintenance Agenda Submission Form
Form A
Issue: EITF 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar Life Insurance Arrangements
Check (applicable entity):
P/C
Life
Health
Modification of existing SSAP
New Issue or SSAP
Description of Issue: EITF 06-4 was issued in 2006 and provides guidance on whether a postretirement
benefit associated with an endorsement split-dollar life insurance arrangement is effectively settled in
accordance with FAS 106 or Opinion 12 upon entering into such arrangement. The guidance from EITF 06-4
has been incorporated within the FASB Codification and is reflected in ASC 715-60-05 (paragraphs 14-15
and 20-21) and ASC 715-60-55 (paragraphs 176-181).
This GAAP guidance is specific to endorsement split-dollar life insurance arrangements, which is defined in
the FASB Codification master glossary as follows:
Endorsement Split-Dollar Life Insurance Arrangement: A split-dollar life insurance arrangement in
which the entity owns and controls the insurance policy. The employer enters into a separate
agreement that splits the policy benefits between the employer and the employee. The employer owns
the policy, controls all rights of ownership, and may terminate the insurance policy (and, in turn, the
policy benefits promised to the employee). To effect the split-dollar arrangement, the employer
endorses a portion of the death benefits to the employee (the employee designates a beneficiary for
this portion of the death benefits). Upon the death of the employee, the employee's beneficiary
typically receives the designated portion of the death benefits directly from the insurance entity and
the employer receives the remainder of the death benefits.
The issue in EITF 06-4 is limited to the recognition of a liability and related compensation costs for
endorsement split-dollar life insurance arrangements that provide a benefit to an employee that extends to
postretirement periods. It does not apply to arrangements that provide a specified benefit to an employee that
is limited to the employee’s active service period with an employer.
The conclusion reached in EITF 06-4 is that for these endorsement split-dollar life insurance arrangements an
employer shall recognize a liability for future benefits based on the substantive agreement with the employee.
Furthermore, a liability for a benefit obligation is not settled through a typical endorsement split-dollar life
insurance arrangement. The liability recognized should reflect the substance of the arrangement, including:

If employer agrees to maintain a life insurance policy during the employee’s retirement, the cost of
the insurance policy during postretirement periods should be accrued.

If the employer has effectively agreed to provide the employee with a death benefit, the employer
shall accrue, over the service period, a liability for the actuarial present value of the future death
benefit.
All available evidence should be considered in determining the substance of the arrangement, such as explicit
written terms, communications between the employer and employee, and the determining of whether the
employer or the insurer is the primary obligor for the postretirement benefit. For example:
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
If employer agrees to provide a death benefit to the employee even in the event of default by
insurance company, this would be an indication that the promise to the employee is to provide a
postretirement death benefit. If amount of death benefit is not explicitly tied to an insurance policy,
then the amount of the postretirement benefit should also be the amount of the death benefit promised
to the employee.

If the terms of the arrangement are such that the employer has no obligation to the employee upon
default of the insurance company, that would be an indication that the postretirement benefit is a
promise to maintain a life insurance policy during the employee’s retirement.
With the issuance of EITF 06-4, entities could elect to apply the guidance in one of two ways:
1. Change in accounting principle through a cumulative-effect adjustment to retained earnings or to
other components of equity or net assets as of the beginning of the year
2. Change in accounting principle through retrospective application to all prior periods
Existing Authoritative Literature:
SSAP No. 92—Accounting for Postretirement Benefits Other Than Pensions adopts with modification FAS
106—Employers’ Accounting for Postretirement Benefits Other Than Pensions, as amended by FAS 158,
Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB
Statements No. 87, 88, 106 and 132(R). Guidance in SSAP No. 92, paragraphs 57-61 currently provides
guidance on insurance contracts and the impact to the postretirement benefit obligation:
Insurance Contracts
57.
For purposes of this statement, an insurance contract is defined as a contract in which an
insurance company unconditionally undertakes a legal obligation to provide specified benefits
to specific individuals in return for a fixed consideration or premium; an insurance contract is
irrevocable and involves the transfer of significant risk from the employer (or the plan) to the
insurance company. Benefits covered by insurance contracts shall be excluded from the
accumulated postretirement benefit obligation. Insurance contracts shall be excluded from
plan assets.
58.
Some insurance contracts (participating insurance contracts) provide that the purchaser
(either the plan or the employer) may participate in the experience of the insurance company.
Under those contracts, the insurance company ordinarily pays dividends to the purchaser, the
effect of which is to reduce the cost of the plan. If the participating insurance contract causes
the employer to remain subject to all or most of the risks and rewards associated with the
benefit obligation covered or the assets transferred to the insurance company, that contract is
not an insurance contract for purposes of this statement, and the purchase of that contract
does not constitute a settlement pursuant to paragraphs 80-85.
59.
The purchase price of a participating insurance contract ordinarily is higher than the price of
an equivalent contract without a participation right. The difference is the cost of the
participation right. The cost of the participation right shall be recognized at the date of
purchase as a nonadmitted asset. In subsequent periods, the participation right shall be
nonadmitted and measured at its fair value if the contract is such that fair value is reasonably
estimable. Otherwise the participation right shall be measured at its amortized cost (not in
excess of its net realizable value), and the cost shall be amortized systematically over the
expected dividend period under the contract.
60.
To the extent that insurance contracts are purchased during the period to cover
postretirement benefits attributed to service in the current period (such as life insurance
benefits), the cost of those benefits shall be the cost of purchasing the coverage under the
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contracts, except as provided in paragraph 59 for the cost of a participation right. If all the
postretirement benefits attributed to service in the current period are covered by
nonparticipating insurance contracts purchased during that period, the cost of the contracts
determines the service cost component of net postretirement benefit cost for that period.
Benefits attributed to current service in excess of benefits provided by nonparticipating
insurance contracts purchased during the current period shall be accounted for according to
the provisions of this statement applicable to plans not involving insurance contracts.
61.
Other contracts with insurance companies may not meet the definition of an insurance
contract because the insurance company does not unconditionally undertake a legal
obligation to provide specified benefits to specified individuals. Those contracts shall be
accounted for as investments and measured at fair value. If a contract has a determinable
cash surrender value or conversion value, that is presumed to be its fair value. For some
contracts, the best available estimate of fair value may be contract value.
SSAP No. 21—Other Admitted Assets adopts with modification EITF 06-5, Accounting for Purchases of Life
Insurance – Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin 854. This guidance clarifies how to determine the amount that could be realized on life insurance in situations
where the reporting entity is the owner and beneficiary or has otherwise obtained rights to contract the policy:
The Amount That Could Be Realized on Life Insurance Where the Reporting Entity is Owner
and Beneficiary or Has Otherwise Obtained Rights to Control the Policy
6.
The amount that could be realized on life insurance policies where the reporting entity is the
owner and beneficiary, or has otherwise obtained the rights to control the policy, is similar to
a cash deposit that is realizable on demand. As such, the amount that could be realized on a
life insurance policy as of the date to which premiums have been paid shall be reported as an
admitted asset. In determining the amount that could be realized, reporting entities shall
consider the cash surrender value as well as other contractual terms which limit or provide for
additional realizable amounts. Amounts recoverable by the reporting entity at the discretion of
the issuing company shall not be included. Amounts realizable beyond one year from the
surrender date shall be discounted. For group policies or a group of individual life policies,
reporting entities shall assume surrender on a policy by policy or certificate by certificate
basis, unless contractual terms only allow for surrender of all policies or certificates as a
group, in which case the amount that could be realized shall be determined on a group basis.
Activity to Date (issues previously addressed by SAPWG, Emerging Accounting Issues WG, SEC,
FASB, other State Departments of Insurance or other NAIC groups): None
Information or issues (included in Description of Issue) not previously contemplated by the SAPWG:
None
Staff Recommendation:
It is recommended that the Working Group move this item to the nonsubstantive active listing and
expose nonsubstantive revisions to adopt with modification EITF 06-4 and incorporate guidance to
SSAP No. 92 and SSAP No. 21 to reflect the accounting impact of endorsement split-dollar life
insurance arrangements. Staff has not incorporated specific SSAP revisions for how to account for the
inclusion of this GAAP guidance. It is anticipated that these revisions will be a nonsubstantive change, and
that these insurance policies have not previously resulted in an elimination of the postretirement benefit
obligation. However, if comments are received regarding the need for transition guidance, staff would
recommend that these revisions be incorporated as a change in accounting principle under SSAP No. 3.
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Proposed Revisions to SSAP No. 21:
The Amount That Could Be Realized on Life Insurance Where the Reporting Entity is
Owner and Beneficiary or Has Otherwise Obtained Rights to Control the Policy
6.
The amount that could be realized on life insurance policies where the reporting entity is the
owner and beneficiary, or has otherwise obtained the rights to control the policy, is similar to
a cash deposit that is realizable on demand. As such, the amount that could be realized on a
life insurance policy as of the date to which premiums have been paid shall be reported as an
admitted asset. In determining the amount that could be realized, reporting entities shall
consider the cash surrender value as well as other contractual terms (such as employee
portions of endorsement split-dollar life insurance arrangements), which limit or provide for
additional realizable amounts. Amounts recoverable by the reporting entity at the discretion of
the issuing company shall not be included. Amounts realizable beyond one year from the
surrender date shall be discounted. For group policies or a group of individual life policies,
reporting entities shall assume surrender on a policy by policy or certificate by certificate
basis, unless contractual terms only allow for surrender of all policies or certificates as a
group, in which case the amount that could be realized shall be determined on a group basis.
Proposed Revisions to SSAP No. 92:
Insurance Contracts
57.
For purposes of this statement, an insurance contract is defined as a contract in which an
insurance company unconditionally undertakes a legal obligation to provide specified benefits
to specific individuals in return for a fixed consideration or premium; an insurance contract is
irrevocable and involves the transfer of significant risk from the employer (or the plan) to the
insurance company. Benefits covered by insurance contracts shall be excluded from the
accumulated postretirement benefit obligation. Insurance contracts shall be excluded from
plan assets.
58.
Some insurance contracts (participating insurance contracts) provide that the purchaser
(either the plan or the employer) may participate in the experience of the insurance company.
Under those contracts, the insurance company ordinarily pays dividends to the purchaser, the
effect of which is to reduce the cost of the plan. If the participating insurance contract causes
the employer to remain subject to all or most of the risks and rewards associated with the
benefit obligation covered or the assets transferred to the insurance company, that contract is
not an insurance contract for purposes of this statement, and the purchase of that contract
does not constitute a settlement pursuant to paragraphs 80-85. Endorsement split-dollar life
insurance contracts1 do not settle a liability for a postretirement benefit obligation. For these
contracts, and other insurance contracts that do not constitute settlement, reporting entities
shall accrue a liability for the postretirement benefit arrangement in accordance with this
Statement.
59.
The purchase price of a participating insurance contract ordinarily is higher than the price of
an equivalent contract without a participation right. The difference is the cost of the
1
An endorsement split-dollar life insurance arrangement is a split-dollar life insurance arrangement in which the entity
owns and controls the insurance policy. The employer enters into a separate agreement that splits the policy benefits
between the employer and the employee. The employer owns the policy, controls all rights of ownership, and may
terminate the insurance policy (and, in turn, the policy benefits promised to the employee). To effect the split-dollar
arrangement, the employer endorses a portion of the death benefits to the employee (the employee designates a
beneficiary for this portion of the death benefits). Upon the death of the employee, the employee's beneficiary typically
receives the designated portion of the death benefits directly from the insurance entity and the employer receives the
remainder of the death benefits. SSAP No. 21, paragraph 6 provides guidance for amounts reporting entities can realize
when they are owner and beneficiary, or otherwise have obtained rights to control insurance policies.
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participation right. The cost of the participation right shall be recognized at the date of
purchase as a nonadmitted asset. In subsequent periods, the participation right shall be
nonadmitted and measured at its fair value if the contract is such that fair value is reasonably
estimable. Otherwise the participation right shall be measured at its amortized cost (not in
excess of its net realizable value), and the cost shall be amortized systematically over the
expected dividend period under the contract.
60.
To the extent that insurance contracts are purchased during the period to cover
postretirement benefits attributed to service in the current period (such as life insurance
benefits), the cost of those benefits shall be the cost of purchasing the coverage under the
contracts, except as provided in paragraph 59 for the cost of a participation right. If all the
postretirement benefits attributed to service in the current period are covered by
nonparticipating insurance contracts purchased during that period, the cost of the contracts
determines the service cost component of net postretirement benefit cost for that period.
Benefits attributed to current service in excess of benefits provided by nonparticipating
insurance contracts purchased during the current period shall be accounted for according to
the provisions of this statement applicable to plans not involving insurance contracts.
61.
Other contracts with insurance companies may not meet the definition of an insurance
contract because the insurance company does not unconditionally undertake a legal
obligation to provide specified benefits to specified individuals. Those contracts shall be
accounted for as investments and measured at fair value. If a contract has a determinable
cash surrender value or conversion value, that is presumed to be its fair value. For some
contracts, the best available estimate of fair value may be contract value.
84.
If the purchase of a participating insurance contract constitutes a settlement, the maximum
gain (but not the maximum loss) shall be reduced by the cost of the participation right before
determining the amount to be recognized in income. As detailed in paragraph 58, the
purchase of an endorsement split-dollar life insurance contract does not settle a liability for a
postretirement benefit obligation.
99.
This statement adopts with modification paragraphs 1-7 and 16-18 as well as Appendix D –
Amendments to Statement 106 and Appendix E – Amendments to Statement 132(R) of
FASB Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (FAS
158). Paragraphs 8-10 and D2.u providing specific guidance for not-for-profit organizations is
rejected. Paragraphs 11-15 regarding the effective dates for FAS 158 is rejected and
paragraph 19 providing an alternative method for remeasuring plan assets and benefits
obligations as of the fiscal year the measurement date provisions are applied is also rejected.
The disclosure included within FAS 132 (R), as amended by FAS 158, pertaining specifically
to pensions (paragraph 5e) has been rejected for inclusion within this standard. This
Statement adopts the revisions to paragraph 5d of FAS 132(R) as amended by FASB Staff
Position FAS 132(R)-1, Employers’ Disclosures about Postretirement Benefit Plan Assets
(FSP FAS 132(R)-1) and ASU 2010-06, Fair Value Measurements and Disclosures (Topic
820): Improving Disclosures about Fair Value Measurements (ASU 2010-06). Other revisions
to disclosure requirements as amended by FSP FAS 132(R)-1 relate to nonpublic entities and
are rejected. This Statement adopts EITF 06-4, Accounting for Deferred Compensation and
Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements.
This Statement adopts by reference FSP FASB 158-1, Conforming Amendments to the
Illustrations in FASB Statements No. 87, No. 88, and No. 106 and to the Related Staff
Implementation Guides (FSP FAS 158-1) to the extent that the examples and related
implementation guides comply with the adopted GAAP guidance previously identified within
this statement, as modified for statutory accounting. The following modifications from the
adopted paragraphs of FAS 158 and FAS 106 have been incorporated within this standard:
Staff Review Completed by:
Julie Gann – January 2013
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Status:
On April 6, 2013, the Statutory Accounting Principles (E) Working Group moved this item to the
nonsubstantive active listing and exposed nonsubstantive revisions, as illustrated above, to adopt with
modification EITF 06-4, Accounting for Deferred Compensation and Postemployment Benefits Aspects of
Endorsement Split-Dollar Life Insurance Arrangements and reflect the impact of endorsement split-dollar life
insurance arrangements within SSAP No. 21—Other Admitted Assets (SSAP No. 21) and 92—Accounting for
Postretirement Benefits Other Than Pensions, A Replacement of SSAP No. 14 (SSAP No. 92).
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Life.docx
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