AALU’s Educational Webinar Series Presents:
Bank and Business Split-Dollar Plans:
Maintain, Revise or Eliminate?
Presented by Jim Foyt, CPA of EBS, LLC &
Francis X. Grady, JD of Grady & Associates
Moderated by Lee Nunn, CLU, CPA
AALU Nonqualified Plans Committee Chair
October 9, 2007
EITF: Split Dollar
I.
Historical Accounting for Split Dollar
II.
The Problem
A. Disagreement between auditors and employers
B. EITF: Diversity in Split Dollar Accounting
C. Comment Letters
EITF: Split Dollar
III.
EITF Decision
A. Employers must account for post-retirement
split-dollar plans
B. Effective for fiscal years beginning after
December 15, 2007
C. Liability to be accounted for based on the terms
of the agreement using FAS 106 or APB
Opinion No. 12, as applicable.
D. EITF 06-4, September 20, 2006
E. EITF 06-10, March 28, 2007
EITF: Split Dollar
IV. The Nature of the Liability
A. Employer agrees to maintain a life
insurance policy
B. Employer has agreed to provide the
employee with a death benefit
EITF: Split Dollar
C.
All available evidence should be considered to determine the
substance of the arrangement.
1.
If the employer agrees to provide a death benefit to the
employee even in the event of default by the insurance
company, then the promise made to the employee is to
provide a post-retirement death benefit.
2.
If the amount of the death benefit is not explicitly tied to an
insurance policy, then the amount of the post-retirement
benefit should also be the amount of the death benefit
promised to the employee.
3.
If the terms of the arrangement are such that the employer
has no obligation to the employee upon default of the
insurance company, then the benefit is a promise to
maintain a life insurance policy during the employee’s
retirement.
EITF: Split Dollar
V. Calculating the Liability
A. No Authoritative Examples are available
B. Professional Judgment Required
C. Calculation Assumptions
D. Marketplace Practices
EITF: Split Dollar
VI. Recording the Liability
A. Cumulative-effect Adjustment to Retained
Earnings
B. Retrospective Application to all Prior Periods
C. Ongoing Accounting
D. Ultimate Impact of EITF – Timing Difference
VII. No Tax Benefit from Post Retirement Liability
EITF: Split Dollar
VIII. Bank Regulatory Considerations
A. Capital Reduction
B. BOLI Risk Management
C. Risk Model Validation
EITF: Split Dollar
IX. Planning Ideas and Alternatives
A.
Identify and Quantify the Liability
1.
2.
First calculate the EITF accounting impact
Review calculations with Employer’s CPA
B.
Amend Plans
C.
Terminate Plan
D.
Alternative Plans
E.
Federal Tax Considerations
Questions and Answers
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Reference Material
Recent AALU Washington Reports on Split-Dollar
•
Washington Report 07-74 , Interplay Between New Split-Dollar
Accounting Requirements and Bank Regulatory Capital Requirements
•
Washington Report 07-54, Final Abstract of EITF Issue 06-10 Prescribes
Financial Accounting for Collateral Assignment Split-Dollar Arrangements
Providing Post-Retirement Benefits
•
Washington Report 06-144, Analysis of EITF Issue No. 06-4, Accounting
for Deferred Compensation and Postretirement Benefit Aspects of
Endorsement Split-Dollar