Secular Trust [402(b)] (nonexempt Trust)
Definition of "Secular trust [402(b)] (nonexempt trust)"
Non qualified plan of deferred compensation whose goal is to compensate key employees without having to provide similar benefits to rank and file employees. The trust is irrevocable, and funds placed in it are protected against claims made by the company's creditors. Even though funds in this trust are not in the employee's possession, they are deemed by the Internal Revenue Service to have been constructively received by the employee. The company is allowed to take an income tax deduction for the funds it contributed to the trust, even though these funds have not been distributed to the employee while he or she has current taxable income. At the time funds from the trust are actually distributed, the employee is taxed only to the extent that these distributions are from earnings of the trust or from current trust income, which will allow the employee to pay taxes owed as the result of the company's contributions to the trust. The employer is not taxed on the trust income: the employee pays all taxes on this income. For example, assume that the company is in the 34% tax bracket and contributed $40,000 to the trust on behalf of John Employee, who is in the 28% tax bracket. The result is that John Employee will have an $11,200 tax liability ($40,000 x 28%) and the company will incur a $13,600 tax deduction ($40,000 x 34%). In order that John Employee will have the necessary funds to pay the taxes owed, the company usually will bonus him the $11,200 required, which of course is tax deductible as a business expense for the company.
Popular Insurance Terms
Insurance in which most of the premium (generally 80 to 90%) is invested in traditional fixed income securities. The remainder of the premium is invested in call option contracts tied to a ...
Amount charged to an insured that reflects expectation of loss for a covered risk; and insurance company expenses and profit. ...
Intentional damage or destruction of another person or business's property. Insurance can be purchased by the owner of the property to protect against this exposure. ...
Coverage for dispensers of alcoholic beverages against suits arising out of bodily injury and/or property damage caused by its customers to a third party. Establishments covered include ...
Employee benefit plans under which both the employee and the employer pay part of the premium. Contribution ratios vary. For example, an employer contributes two dollars for every dollar ...
Derivative representing a legal obligation to carry out a transaction that has been prearranged according to a stipulated price and date in the future. There are numerous types of financial ...
Action by the owner of a cash value policy to relinquish it for its cash surrender value. Since the depression of the 1930s, companies have reserved the right to delay payment of a cash ...
Consideration should be given to a company's capacity to underwrite a particular risk, as indicated by its financial standing, claims philosophy, price structure, agent representation, loss ...
Annuity contract. If the annuitant dies before receiving income at least equal to the premiums paid, a beneficiary receives the difference in installments. If the annuitant lives after the ...
Have a question or comment?
We're here to help.