Glenn G. Geiger Company, Inc
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Informal Financing of Benefit Obligations
More and more community bankers are looking to finance the obligations associated with
non-qualified executive and director benefits.  While there is no legal requirement to “fund”
these benefit liabilities, such liabilities continue to grow as larger numbers of executives
are impacted by the IRS benefit and contribution limits and restrictions.  Bank Owned Life
Insurance (BOLI) has become the financing strategy of choice for financing these liabilities
as well as supplementing the financing of pension contributions, health care costs and
other general employee benefit expenses.  BOLI describes a unique asset exclusively
available to banks that combines an investment grade portfolio with institutionally priced
life insurance specifically designed and priced for the community bank market.  

Several other financing methods for non-qualified plans have evolved including  
“rabbi trusts” and “secular trusts.”

Rabbi Trusts:  An irrevocable trust whose assets can only be used (except in the case of
bankruptcy) to pay non-qualified plan benefits.  With a rabbi trust, the tax liability to the
participant as well as the employer’s tax deduction for contributions are deferred until the
benefits are actually paid.  Investment earnings on any contributions are treated as
taxable corporate earnings.  
The trust assets may be protected in the case of a change in
control of the company, but are not protected in the case of bankruptcy or insolvency.  

Secular Trusts:  An irrevocable trust whose assets can only be used to pay non-qualified
plan benefits.  Since employees have an absolute right to their account balances,
contributions to the trust provide an
immediate tax deduction for the employer, while
employees are taxed immediately on all money credited to their respective trust accounts,
and on any trust earnings in the future.  Subsequent benefit payments to employees are
tax-free and do not need to be as large as payments from a rabbi trust, which are fully
Since the contributions to a secular trust are considered after-tax employee
contributions, these non-qualified plan benefits are protected against bankruptcy.
Over 60 Years
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Glenn G. Geiger Company, Inc.
501 Merritt 7. 5th Floor  |  Norwalk, CT 06851  |  203.359.5313
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