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
Layering of a bond portfolio where bonds are sold whose yield to maturity are low and bonds are bought whose yield to maturity are high in order that reserve requirements are met for future ...
Insurance companies that seek an economic advantage, thereby increasing their returns on equity by utilizing their specialized knowledge about a given line of insurance, territory, or risk ...
Coverage for risks deemed uninsurable at standard rates by normal standards (persons whose medical histories include serious illness such as heart disease or whose physical conditions are ...
Coverage for an insured when negligent acts and/or omissions result in bodily injury and/or property damage on the premises of a business, when someone is injured as the result of using the ...
Income, medical, rehabilitation, death, and survivor payments to workers injured on the job. State workers compensation laws, which date from early in the twentieth century, provide that ...
Legal decision wherein proceeds of a life insurance policy on which the decedent's corporation paid the premiums within three years of his or her death are not includable in the decedent's ...
Supplemental coverage written into or endorsed onto many business and personal liability policies. Covers medical costs and loss of income of persons injured on an insured's property, ...
From favor payment by an insurance company to an insured even though the company has no legal liability. The company makes such a payment for goodwill purposes. ...
Method for triennial examination of insurance companies as established by the national association of insurance commissioners (NAIC). Teams are composed of representatives from several ...
Have a question or comment?
We're here to help.