BUSINESSWEEK ONLINE : FEBRUARY 19, 2001 ISSUE
BUSINESSWEEK INVESTOR SERP Swaps: How They Work THE SITUATION A 60-year-old exec has $2 million in a retirement account. Since she and her husband, also 60, have other accounts, they decide to pass this one on to their children. THE SWAP The executive gives the account to her company in exchange for a split-dollar life-insurance policy with a $6.4 million death benefit. The company uses the account and its earnings to pay premiums--$430,000 a year for seven years. ROLLOUT After 15 years, the company reclaims its premiums from the policy. The executive now owns the policy outright. AT DEATH If the executive and her spouse meet their life expectancies, the policy has grown to $13 million when she dies at age 88. TAXES Under most plans, the executive pays taxes while the company owns part of the policy (from $2,000 the first year to $16,000 in year 15). No taxes are paid on the cash value when the company pulls out its premiums. IRS POSITION Executives should pay higher taxes during the premium-payment period. The IRS is studying how to tax the cash value remaining when the company reclaims its premiums. Data: Watson Wyatt Worldwide, BusinessWeek _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Crackdown on a Pension Perk TABLE: SERP Swaps: How They Work INTERACT E-Mail to Business Week Online

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