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Split Dollar Research Report

Split dollar programs in public for profit companies have long been a standard component of the compensation and benefits package for key employees and professionals. However, in recent years, the costs and benefits of split dollar arrangements have been significantly impacted by a number of legislative, regulatory, tax and accounting changes. In general, these changes have reduced the benefits to participants and increased the cost to the plan sponsor.

The objective of this study, completed in 2012, was to gain a better understanding of what plan sponsors did in response to these changes. Whether they have chosen to terminate, re-design or replace the plans they sponsor.

While our study on the use of Split Dollar in public companies showed a declining number of programs, the opposite is likely true in nonprofit entities.  With the passage of the Tax Cuts and Jobs Act in December (TCJA), 2017 there has been a resurgence of interest in Split Dollar programs by nonprofits, with TCJA’s imposition of a 21% excise tax on excess compensation likely being a key factor.  For an in-depth discussion on the use of Split Dollar in nonprofits, see our 2018 white paper entitled “Why Nonprofits are so Interested in Split-Dollar Life Insurance – Should You Be Too?”

While they have been dramatically impacted by recent changes in legislation and regulation, a contemporary version of a split dollar program can still deliver valuable benefits to participants on a cost-effective basis to the plan sponsor.