This chapter covers group-term life insurance along with the carve-out for executives. The chapter begins by highlighting the $50,000 tax-free benefit under Code section 79. Design features are discussed, focusing on the following nondiscrimination requirements: coverage rules, benefit rules, and who can be excluded. | Life insurance provided to a group of employees under a group insurance contract held by the employer If plan qualifies under IRS Code Sec. 79, the cost of the first $50,000 of insurance is tax-free to employees What is it? Copyright 2009, The National Underwriter Company When is it indicated? Virtually all employees have need of basic life insurance Tax advantage for first $50,000 coverage makes it a common employee benefit, at least to that face value Group-term plans may also provide cost-effective life insurance coverage in amounts above $50,000 Copyright 2009, The National Underwriter Company Design Features: Nondiscrimination Requirements Sec. 79 prescribes rules to prevent discrimination in favor of key employees (as defined in IRC) Nondiscrimination requirements do not apply to plans of churches, synagogues, or certain related organizations If rules are not met, key employees lose tax advantage on first $50,000 of coverage Copyright 2009, The National Underwriter Company Design Features: Coverage Rules Plan must benefit at least 70% of all employees benefit a group of which at least 85% are not key employees benefit a nondiscriminatory classification of employees meet Sec. 125 nondiscrimination rules if in a cafeteria plan Copyright 2009, The National Underwriter Company Design Features: Benefit Rules Benefits must not discriminate in favor of key employees All benefits available to key employees must be available to other plan participants If life insurance coverage is same % of compensation for all employees will not violate benefit nondiscrimination rule Copyright 2009, The National Underwriter Company Design Features: Who Can Be Excluded Employees who have not completed 3 years of service Part-time or seasonal employees Employees who are part of a collective bargaining unit that has engaged in good faith bargaining on issue of death benefits Copyright 2009, The National Underwriter Company Requirements of Section 79 Regulations . | Life insurance provided to a group of employees under a group insurance contract held by the employer If plan qualifies under IRS Code Sec. 79, the cost of the first $50,000 of insurance is tax-free to employees What is it? Copyright 2009, The National Underwriter Company When is it indicated? Virtually all employees have need of basic life insurance Tax advantage for first $50,000 coverage makes it a common employee benefit, at least to that face value Group-term plans may also provide cost-effective life insurance coverage in amounts above $50,000 Copyright 2009, The National Underwriter Company Design Features: Nondiscrimination Requirements Sec. 79 prescribes rules to prevent discrimination in favor of key employees (as defined in IRC) Nondiscrimination requirements do not apply to plans of churches, synagogues, or certain related organizations If rules are not met, key employees lose tax advantage on first $50,000 of coverage Copyright 2009, The National Underwriter .
