Split-Dollar Plans and the Sarbanes-Oxley Act

Since the Sarbanes-Oxley Act’s interpretation and administration is within the jurisdiction of the Securities and Exchange Commission, the final split-dollar regulations do not address this issue. Most experts seem to think that collateral assignment split-dollar plans and split-dollar loan arrangement would fall under this Act. It is unlikely that the Act would apply to endorsement-type split-dollar arrangements because the employer owns the policy under this arrangement and there is no loan of any premiums—the employee only pays for and is entitled to an interest in the death benefit under such an arrangement. As of the date of this writing, the SEC has expressed no opinion on the application of the Act to split-dollar arrangements.

Therefore, until the SEC provides further guidance, directors and executive officers of public companies should be very wary about paying any new premiums after July 30, 2002 pursuant to a collateral assignment split-dollar or loan arrangement (keeping existing collateral assignment or loan arrangements in place may be okay as long as there are no further extensions of credit, but additional premiums should be paid via a bonus arrangement instead). The plans may be beyond the reach of the Act if the plans can be considered as a binding commitment entered into prior to the Act’s effective date and are grandfathered under the Act. The consequences of violating the Act can be severe–up to and including the imposition of fines and criminal penalties. However, remember that Sarbanes-Oxley applies only to senior executives of public companies and not to closely-held companies. Closely-held companies are probably the largest market for split-dollar plans.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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