What Happens to an Employee’s Interest If an Employer Goes Bankrupt?

What Happens to an Employee's Interest If an Employer Goes Bankrupt?

When discussing an employee’s interest, both the covered employee and his beneficiaries have only the status of an unsecured creditor. A living employee typically has no rights under a DBO plan, since there are no obligations that become fixed until and unless the employee dies while working for the employer. Beneficiaries, as unsecured creditors, have […]

ERISA Implications of a Death Benefit Only Plan

ERISA Implications of a Death Benefit Only Plan

A DBO plan is considered to be an employee welfare benefit plan subject to the requirements of Title I of ERISA. Fortunately, most DBO plans are exempt from ERISA’s participation, vesting, and funding requirements. Reporting and disclosure is streamlined if the DBO plan is limited to a select group of management or highly compensated employees […]

Tax Implications of a Death Benefit Only Plan

Tax Implications of a Death Benefit Only Plan

This article provides a behind-the-scenes look at tax implications that should be considered about using a death benefit only plan instead of a traditional insurance policy. Understanding the various taxes will help you make a more educated financial decision. No income tax is payable by the covered employee on the premiums that the employer pays […]

Using Life Insurance to Finance a Death Benefit Only Plan

Using Life Insurance to Finance a Death Benefit Only Plan

Most DBO plans promise to make payments over a number of years (e.g., $100,000 per year for ten years, if death occurs prior to age sixty-five). Assume a plan promised a $10,000 annual death benefit for ten years to the surviving spouse of a key executive, otherwise to the executive’s children. Assume the employer corporation […]

Requirements of Using a Death Benefit Only Plan

Requirements of Using a Death Benefit Only Plan

The employer installs a nonvoluntary DBO plan by a written contract between the employer and the selected employee stating the terms of the contract. The employee should have no choice with respect to whether to elect coverage. The agreement should specify: the amount of the benefit, or the formula upon which the benefit is based; […]

Disadvantages of a Death Benefit Only Plan

Disadvantages of a Death Benefit Only Plan

This article provides a behind-the-scenes look at the disadvantages and what you should know before using a death benefit only plan instead of a traditional insurance policy. Understanding the various benefits will help you make a more educated financial decision. The entire payment by the corporation to the beneficiary under a DBO plan is subject […]

6 Advantages of a Death Benefit Only Plan

6 Advantages of a Death Benefit Only Plan

This article provides a behind-the-scenes look at 6 advantages and why you should think about using a death benefit only plan instead of a traditional insurance policy. Understanding the various benefits will help you make a more educated financial decision. Under current law, if the covered employee is a shareholder who owns 50 percent or […]

11 Reasons to use a Death Benefit Only Plan

11 Reasons to use a Death Benefit Only Plan

This article provides a behind-the-scenes look at 11 reasons why you should think about using a death benefit only plan instead of a traditional insurance policy. Understanding the various circumstances will help you make a more educated financial decision. When the employer client seeks an employee benefit to recruit, retain, reward, and counterbalance the limitations […]

An Introduction to the Death Benefit Only Plan

An Introduction to the Death Benefit Only Plan

A Death Benefit Only (DBO) plan (sometimes called a survivors’ income benefit plan) is an executive benefit promising payments from the employer to the survivors of an eligible employee at the employee’s death. As its name implies, a DBO plan provides only death benefits and promises no payments to the employee during his lifetime. In […]