Pension Protection Act Guide - January 2009 - (Page 23)

Pension Protection Act Guide – nonqualified Plans SpEcIfIc poINtS NoNquaLIfIED Corporate owned Life Insurance (CoLI) Immediately Generally, no federal income tax is imposed on death benefits paid under life insurance contracts. Accordingly, CoLI became a taxeffective way to finance executives’ nonqualified benefits. In certain abusive situations involving prominent nationally recognized businesses, insurance was issued on the lives of rank and file employees who were unaware they were insured and had no interest in the policies. Life insurance death benefits paid under an employer-owned policy are tax-free only if certain conditions are met. In general, death benefits paid as a result of the death of highly compensated employees (as defined in IRC 414(q)), highly compensated individuals (as defined in IRC 105(h)(5)) or directors, remain tax-free. • The new tax treatment applies to policies issued or materially changed after the date of enactment. • We can help you evaluate your current and new CoLI programs. EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you Individual Investors SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you INDIvIDuaL INvEStorS Charitable Contributions Taxable years beginning between January 1, 2006, and December 31, 2007. The Emergency Economic Stabilization Act of 2008 (EESA) extended this program to distributions made after December 31, 2007, but before January 1, 2010. Normal charitable contribution deduction limits apply to donations from IRAs to charitable organizations. Anyone age 70 1⁄2 or older now can make up to $100,000 annually in tax-free direct distributions from IRAs to charitable organizations. • Charitable giving from IRAs is simplified and enhanced for individuals. Tax Refund to IRA Taxable years beginning in 2007 Allows taxpayers to directly deposit their tax refunds only into a savings or checking account. Also allows taxpayers to directly deposit their tax refunds into their IRAs. • Easier funding of IRAs. Investment Advice for IRAs for plan years beginning on or after January 1, 2007 An investment adviser who recommends investments that pay an additional fee to the adviser could be considered a prohibited transaction (self-dealing). New prohibited transaction exemptions for investment advice given by fiduciary advisers require that the fees received by the fiduciary adviser do not vary in accordance with the investment options chosen. The DoL is directed to study the feasibility of extending a computerbased exemption to IRAs (similar to that for ERISA plans). • Individuals may be able to get professional investment advice on their IRAs as well as their ERISA plans. Note: Princor Registered Representatives are prohibited from giving investment advice on ERISA covered assets. 23

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Pension Protection Act Guide - January 2009 Contents Multiple Plan Types Defined Benefit (DB) Plans Defined Contribution (DC) Plans Employer Securities Nonqualified Individual Investors

Pension Protection Act Guide - January 2009

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