The ASSN.Group™ Plan Member Benefit Program Executive Overview

The ASSN.Group™ Plan
Member Benefit Program
Executive Overview
Association Planning Professional Services, LLC
224 Phillip Morris Drive, Suite 402
Salisbury, MD 21804
800-520-6685
www.assngroup.com
 The ASSN.Group™ Plan Executive Overview
224 Phillip Morris Drive – Suite 402 – Salisbury, MD 21804 – 800-520-6685
www.assngroup.com
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An Association Sponsored Member Benefit Program that
 Creates Wealth and Minimizes Taxation
The ASSN. Group™ Plan (“the Plan”) is an association member benefit that allows
association members to create personal wealth with pre-tax business dollars. The Plan uses
an IRC Section 79 group term life insurance program that allows for the deduction by the
business of the contributions that fund the insurance. The tax treatment of group life
insurance plans is well established in the Internal Revenue Code, tax regulations, and tax
cases.
The Plan is offered exclusively by sponsoring trade associations. This allows for the
Plan to provide some unique benefits to participating businesses. The business can be highly
selective when determining the employees who will participate, it allows high funding levels if
desired, and it creates an asset with substantial underlying value that can be outside of the reach
of business and personal creditors.
Benefits include:
9 Death benefits for business and personal planning
9 The business can be very selective when determining the employees that will participate -
requires participation by as few as two employees
9 Contributions qualify as a deductible business expense
9 Favorable corporate and personal tax treatment
9 Protection from business and personal creditors
9 The ability to supplement employees’ retirement income with tax-free cash flow
9 A unique business tool for use with key employees
An example of how the Plan creates wealth and provides favorable corporate,
individual, and estate tax treatment:
Mr. John Doe is a partner in Doe, Buck & Herd, P.A. He is 45 years old. He is married with
three children. He maximizes his qualified retirement Plan contributions each year. He wants to
provide additional benefits to himself and perhaps key employees, use additional pre-tax
business income to fund retirement needs, and have payments qualify as a deductible business
expense. He wants to create an asset that steadily accumulates value. He wants the asset to be in
a creditor proof position. In addition, he needs to provide substantial death benefits to his
survivors. Finally, he wants to provide the corporate benefits to only a few select employees but
not allow the employees to have total control of the benefits created. The business can commit
$100,000 per year to the program on John’s behalf.

 The ASSN.Group™ Plan Executive Overview
224 Phillip Morris Drive – Suite 402 – Salisbury, MD 21804 – 800-520-6685
www.assngroup.com
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The benefits to Mr. John Doe are …
9 John’s business deducts its contribution of $100,000 per year on John’s behalf.
9 Approximately 10% of the total contribution will be considered taxable income to John,
personally. His out of pocket outlay is limited to his personal taxes on the amount of the
personal income.
9 John’s wife and children are made more financially secure at John’s death.
9 Assuming retirement at age 67, John then has an asset with a current cash value of $2.1
million and a death benefit of $6.4 million.
9 John can receive tax-free distributions of $165,900 for 20 years via policy loans. This totals
$3,318,000 tax-free. There still remains a death benefit of $3.1 million that is income tax free
when paid to John’s beneficiary.
Q. Who benefits from this Plan? The Plan is appealing to business owners, professionals, and
executives looking to satisfy a life insurance need and a need for additional income deferral. The
Plan allows the insurance need to be addressed by using pre- tax business funds to make
premium payments. The Plan provides greater tax efficiency. Perhaps the practice has already
taken maximum advantage of a traditional qualified retirement Plan, or perhaps the business does
not have a retirement Plan due to the size, census, or other factors related to their business. The
Plan is also an ideal alternative to traditional approaches such as deferred compensation, split
dollar, and Supplemental Executive Retirement Plans.
Q. Can the member be selective in choosing participants in the Plan? Yes. The employer
chooses the employees that will participate regardless of the employees’ income, position, or
length of service with the business. A minimum of any two employees must participate.
Q. How does this Plan help create personal wealth through the business? First, death
benefits are provided income tax-free immediately that can satisfy business or personal needs.
Contributions to the Plan are deductible to the business thus giving the business less taxable
income. Cash values in the insurance accumulate with interest on a tax-deferred basis.
Additionally, the asset is outside the reach of personal and corporate creditors.
Q. Is the business limited in the amount of pre-tax funds it allocates to this benefit? There
are no restrictions as to contribution levels except for what is prudent in relation to business cash
flow, and what is considered reasonable compensation for the employee. The premiums are
annually determined by independent actuaries. Contribution levels are not impacted by
retirement plan contributions, or vice versa.
Q. Are the funds I withdraw from a certificate after I leave the Plan tax-free? Yes, if taken
in the form of a loan. The Plan uses life insurance with the death benefit as collateral to the
extent of the borrowing or advances. Any remainder will be distributed to your beneficiary.
 The ASSN.Group™ Plan Executive Overview
224 Phillip Morris Drive – Suite 402 – Salisbury, MD 21804 – 800-520-6685
www.assngroup.com
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Q. Why is this Plan only available through my association? The Plan is offered only as a
member benefit program that is only available through a trade association. Because of existing
tax laws and regulations pertaining to associations, specifically group benefit plans, a business
may choose to participate in the Plan only if it is a member of a “sponsoring” association.
Contributions to the Plan are not deductible if association membership discontinues, i.e. the
employer withdraws from the association membership.
Q. What tax principals apply to this benefit Plan? The Plan is structured as an IRC Section
79 group life program that is based on long-standing tax, legal, accounting, and actuarial
positions and precedents. The Plan has secured independent actuarial valuations and has been
reviewed by numerous accounting and legal professionals who view the Plan as a sound, unique
planning tool. The IRS recently issued a favorable Technical Advice Memorandum in a case that
used an insurance funding structure very similar to the Plan.
Q. Am I protected in the event of an unfavorable IRS ruling? While the Plan is prudently
structured in its unique design, and has been reviewed by the IRS in an audit of an employer
contributor for tax year 2003, the Plan Administrator will be provide technical assistance, at no
charge, during any IRS challenge.
Finally, it is important to note that the Plan investments are exclusively life insurance policies
issued by Jefferson Pilot and other large, financially-sound, national insurance carriers. These are
substantive and stable investments regardless of the tax deductions provided by the Plan.
Q. Sum up for me, why I should become involved? If the business owner and/or key
employees have a need for life insurance with a secure and substantial death benefit beginning in
the first year, the Plan provides a tax efficient way to provide the necessary insurance and
benefits. If employees are looking for additional benefits and the company is looking for
additional deductions, the Plan is a viable option. If another source of benefits is desired, the
Plan can provide additional benefits. If creation of an asset that can be protected from business
and personal creditors is important, the Plan provides a solution.
The ASSN.Group™ Plan employs an actuarial approach to the acquisition and
funding of life insurance. Actual results will vary for each employee depending on many
factors including, but not limited to age, health considerations, contribution levels, and the
timing of any withdrawals. Businesses and employees should not rely solely on the tax
considerations and positions used by the Plan, but should consult with their independent
tax, accounting, and financial advisors regarding participation in the Plan and the effects
of the Plan. Advisors LLC, P.O. Box 143, Kensington, MD 20895-0143
240-604-6945 · Fax: 301-656-1821
ASSNGroup Professional Advisors 2007
Frequently Asked Questions
1. Is the Program considered a “listed transaction” under Treas. Regs. § § 1.6011-
4(b)(2) and 301.6111-2(b)(2), a “tax shelter” under IRC §§ 6111(c) and 6111(d) and
Treas. Reg. § 301.6111-1T, Q&A 4, a “potentially abusive tax shelter” under
IRC § 6112(b) and Treas. Reg. § 301.6112-1(b), or a “reportable transaction” under
Treas. Reg. § 1.6011-4(b)?
NO, Based on a review of the above-referenced IRC and Treasury Regulation provisions
(the “Tax Shelter Provisions”), the Program does not fall within the definition of a “listed
transaction,” a “tax shelter,” "a potentially abusive tax shelter,” or a “reportable transaction” as
defined therein. Furthermore, the Program is not considered to be “substantially similar to” a
“listed transaction,” a “tax shelter,” a “potentially abusive tax shelter,” or a “reportable
transaction” as defined in the applicable sections of the IRC and Treasury Regulations. (See Tax
Memo p.29-31)
2. Does (a) the design of the Program would meet the standards of “group-term life
insurance” under IRC § 79, and (b) if so, are participants solely taxed at the Table I
rate on the economic benefit of the death benefit provided by the Program?
(a) YES, the Program complies with the § 79 rules, and the Participants are taxed
only on the Table I costs for the Program. IRC § 79 and accompanying
regulations set forth four criteria life insurance plans must meet in order to be
considered “group-term life insurance:”
(1) The plan must provide a general death benefit excludable from gross
income under IRC § 101(a).
(2) The plan must be provided to a group of employees as compensation for
personal services performed.
(3) The insurance must be provided under a policy carried directly or
indirectly by the employer.
(4) The amount of insurance provided each employee must be computed
under a formula that precludes individual selection of such amounts. The
formula must be based on factors such as age, years of service, compensation or
position.
Treas. Reg.§1.79-1(a). The Program complies with all four criteria
 Beyond these four requirements, IRC § 79 also requires that life insurance be provided to
at least 10 employees at some point during the calendar year. Id. at §1.79-1(c)(1). However, two
exceptions exist to the ten employee rule. The Program will be considered group-term life Advisors LLC, P.O. Box 143, Kensington, MD 20895-0143
240-604-6945 · Fax: 301-656-1821
insurance even though it covers fewer than 10 employees, if either of the following two
exceptions are met. Id. at §§1.79-1(c)(2) and (3). 3
 The 10-employee rule does not apply, under Treas. Reg. § 1.79-1(c)(2), if:
(1) the life insurance is provided to all full-time employees of the employer;
(2) the amount of insurance provided is computed as either a uniform
percentage of compensation or on the basis of coverage brackets
established by the insurer. No bracket may exceed 2.5 times the next
lower bracket and the lowest bracket must be at least 10% of the highest
bracket; and
(3) evidence of insurability is required but is limited to a questionnaire completed by
the employee.
Additionally where the Program is integrated with an existing Group coverage TAM
2000274 permits the use of an executive carve out approach. This permits to compliance
also with the discrimination rules of Sec. 79(d) where the cumulative death benefit of the
HCE’s do not exceed the cumulative death benefit of the rank and file. See Tax Memo
p.8-11
 If evidence of insurability does not affect an employee’s eligibility, under Treas. Reg. §
1.79-1(c)(3), the 10-employee rule will still not exclude qualification as group-term life insurance
if:
(1) it is provided under a common plan to the employees of two or more unrelated
employers; and
(2) insurance is restricted to, but mandatory for, all employees of an employer who
belong to or are represented by a particular organization that carries on
substantial activities other than obtaining insurance
 With regard to the first of the four basic requirements, IRC § 101(a) excludes from gross
income the amounts payable under a life insurance contract “by reason of the death of the
insured,” and under IRC § 101(g), amounts received by a living but terminally or chronically ill
insured are deemed paid by reason of the death.
 With regard to the second requirement the Program provides a death benefit to employees
as compensation for personal services – as opposed, for example, to payments for earnings on
stock or payments for property, or other impermissible purposes. Treas. Reg. §§ 1.162-7(b)(1).
 With regard to the third requirement, a policy meets this requirement if the employer
pays any part of the cost (directly or through another person). The policy may be a master policy
or a group of individual policies. The term “policy” includes all obligations of an insurer that are
offered or are available to a group of employees because of the employment relationship, even if
they are in separate documents. Treas. Reg. § 1.79-0. The Insurer provides master policy and
certificates to the members.
With regard to the fourth requirement the Program provides benefits in dollar amounts as
specified in the Employer Administrative Agreement. The Program “precludes individual
selection of the benefit amount” and is based on factors such as age, years of service,
compensation or position, this part of the test should be satisfied. 4
With regard to the ten employee rule under the regulations the Program may or may not
cover at least ten employees of an employer. If it does not cover at least ten employees, it is
important to consider whether the Program fits the “common plan” exception under Treas. Reg. §
1.79-1(c)(1) and single plan rules of ERISA (see below). A common plan – which is defined as a
common plan to two or more unrelated employers – may be exempt from the ten-employee
requirement, provided the other conditions are met (i.e., mandatory availability to members, no
differentiation on insurability). Though there is no specific guidance from the Service on
“common plans,” there is nothing in the Program as not describing a common plan providing
benefits to two or more unrelated employers. The Program complies, Additionally, TAM
200002074 confirmed the ability to use a Group Carve out Plan and the taxation to the employees
to be effective under Sec. 79 and Table I. The Program also complies with the eligibility and
benefits discrimination rules under IRC §§ 79(d)(3) and (4)
 (b) YES, Table I is the uniform premium table prescribed by the Treasury to calculate
premium cost allocated to employees. IRC § 79(c); Treas. Reg. § 1.79-3(d)(2). If an employee's
death benefit under group-term life insurance coverage exceeds $50,000, the premium cost of the
excess is gross income to the employee. Treas. Reg. § 1.79-3(d)(3). The Table sets forth the cost
of $1,000 of group-term life insurance provided for one month, computed on the basis of 5-year
age brackets.
 On January 14, 2005, the IRS released Technical Advise Memorandum 200502040,
TAM 144621-03, which confirms and supports the Program. The Service determined that a
structure identical to the Program that provided the Group Term Life component was not taxable
to the employee. Under the Facts, the employee applied for and made after tax payments for the
Supplemental Funding. This is how the Program is designed. Under the TAM, a contract is split
into two pieces and each piece qualifies as life insurance. This arrangement qualified even when
the insurance carrier filed the Group Universal policy with the State Regulatory Agency as a
“single integrated permanent insurance policy” [p.3, lines 7-9]. In further support on September
21,2006 the IRS issued LTR200652043 which supports the co-ownership approach. On January
4,2007 Steve Leimberg’s Estate Planning Newsletter#1072 reported the approach as one life
Policy Split into Two not a Taxable Sale or Exchange. Also see IRS Letter Ruling 200704017
supporting a partnership providing a self funded group plan to employees and the contributions
are deductible by the partnership are deductible under 162(l) and not included in partners income
.
The Program provides insurance benefits in dollar amounts designated by an Employer
Administrative Agreement. Where the Program qualifies as “group-term life insurance,” as stated
above, and the death benefit provided under the policy exceeds $50,000, the members should be
taxed at the Table I rate. The Program complies – see Treas. Reg. § 1.61-2(d)(2)(ii)(A) Cost of
Life Insurance.
3. Is the Program a “split dollar arrangement” as that term is defined in Treas.
Reg. § 1.61-22(b)?
NO, the Program is not a Split Dollar arrangement. Treas. Reg. § 1.61-22(b) defines
“split dollar arrangement” for purposes of tax treatment under the IRC as any arrangement
between a life insurance contract “owner” and a “non-owner” under which: 5
(1) either party to the arrangement pays, directly or indirectly, all or any portion of
the premiums on the life insurance contract, including a payment by means of a
loan to the other party that is secured by the life insurance contract; and
(2) at least one of the parties to the arrangement paying premiums is entitled to
recover, either conditionally or unconditionally, all or any portion of those
premiums, and the recovery is to be made from, or is secured by, the proceeds of
the life insurance contract (emphasis added)
The Program does not permit recovery of premium so the Split Dollar regulations do not
apply. Additionally, the regulations do not apply. That is because Treas. Reg. § 1.61-22 excludes
from the definition of split dollar arrangement any arrangement that is part of an IRC § 79 groupterm
life insurance plan. The only relevant limitation is that an IRC § 79 plan would not be
excluded from the definition of split-dollar arrangement if it provided “permanent” benefits. No
permanent benefit is provided by the Program .Treas. Reg. §1.79-0. Treas. Reg. § 1.61-
22(b)(1)(iii). A “permanent benefit” is an economic value provided under a life insurance policy
which extends beyond one policy year. The actuary’s certifications indicate the funding of the
Program does not provide a benefit extending beyond one year. Additionally if the Service were
to deem a “conversion” occurred, the Regulations specifically excludes: a right to convert (or
continue) life insurance after group coverage terminates; any other feature that provides no
economic benefit to the employee; or a feature under which term life insurance is provided at a
level premium for a period of five years or less. Treas. Reg. § 1.79-0 (emphasis added).
 Coverage under the Program ends effective as of the next anniversary date of the policy.
The day after the termination of coverage, the assignment of rights in the policy is released.
Upon release and continued payment of the full premium by the owner of the policy directly to
the insurance company, coverage may continue. If this were to be considered a conversion it
would not be a permanent benefit, and therefore the Program qualified under IRC § 79 plan, the
Program should not be considered a “split-dollar arrangement.”
4. Whether the Program creates the possibility of a Prohibited Transaction under IRC
§ 4975(e)?
NO, the Program is not a Prohibited Transaction. IRC § 4975 imposes a tax on prohibited
transactions between “plans” and disqualified persons. For this purpose, the IRC defines “plan”
as 403(a) plans or 401(a) trusts which are exempt from tax under 501(a), individual retirement
accounts, Archer medical savings accounts, health savings accounts, and a trust, plan, account or
annuity which has been determined to be one of the preceding by the Secretary of the Treasury.
 The Program provides only a death benefit to covered individuals. The Program is not a
403(a) plan, a 401(a) trust or one of the types of savings accounts described in IRC § 4975(e).
The Program is not a Prohibited Transaction.
5. Is the Program required to comply under IRC § 419A as a welfare benefit fund?
NO, the Program is not required to comply with IRC §§ 419 or 419A. IRC §§ 419 and
419A place limitations on the deductibility of amounts contributed by employers to a “welfare
benefit fund” (including, in some cases, reserve requirements). 6
 A “welfare benefit fund” is any fund which is part of a plan or arrangement of an
employer through which welfare benefits are provided to employees or their beneficiaries. Treas.
Reg. § 1.419-IT, Q&A 3.
 An employee benefit is a “welfare benefit” unless deductions for employer contributions
for the benefit are governed by IRC § 83(h) (transfers of restricted property), IRC § 404
(qualified pension, profit sharing, and stock bonus plans and other deferred compensation
arrangements), or IRC § 404A (foreign deferred compensation plans). IRC § 419(e)(2).
IRC § 419(e)(3)(A) – (C). The first five possibilities do not seem relevant to the
Program, but we should consider whether the Program could be an “account held for an employer
by any person.”
The regulations spell out the test and the Program passes the test. Under Treas. Reg. §
1.419-1T Q&A3, any of the accounts described below, as only the accounts described below, are
accounts held for an employer under IRC § 419(e)(3)(C):
(1) a retired lives reserve or premium stabilization reserve maintained by an
insurance company for a particular employer;
(2) payments from an employer to an insurance company under an “administrative
services only” arrangement with respect to a separate account the insurance
company maintains for the employer for the purpose of providing benefits; and
(3) an insurance or premium arrangement between an employer and an insurance
company if the employer has any right to refund, credit, or additional benefits
based on the benefit, claims, administrative expense or investment experience
attributable to such employer.
 The Program would not be considered a welfare benefit fund under IRC § 419A and
would, therefore, not be subject to the deduction limitation. Additionally, based upon the
actuaries certificates, the accounts would comply with the Safe Harbor of IRC § 419A(c)(2)(1)
and the Program would satisfy the funding requirements of IRC § 419A if the Program were
instead to be considered a welfare benefit fund for purposes of IRC § 419 and 419A.
6. Does the Program constitute a “pension plan” as described in Rev. Rul. 81-162?
NO, Revenue Ruling 81-162 was issued to clarify whether a plan providing benefits
through the purchase of ordinary life insurance contracts, which may be converted to annuity
payments upon retirement, constitutes a pension plan. The tax regulations provide that a pension
plan is a plan established and maintained primarily to provide for payments to employees over a
period of years, usually for life. A pension plan may also provide for the payment of incidental
death benefits through insurance or otherwise. IRC § 401(a); Treas. Reg. § 1.401-1(b)(1)(i).
 Revenue Ruling 81-162 clarified whether a plan created for the purchase of ordinary life
insurance contracts and not primarily for the payment of benefits to employees over a period of
years with only an “incidental” life insurance benefit was a pension plan. The life insurance
benefits were the primary purpose of the plan, not merely an “incidental benefit” under IRC §
401(a). The fact that the insurance contracts could later be converted to a life annuity did not
make the plan a pension plan. 7
 The Program was developed for the primary purpose of providing death benefits through
life insurance. As long as it does not provide life insurance benefits that are merely “incidental”
to a retirement benefit over a period of years, it is not considered a pension plan.
7. Is the Program a “nonqualified deferred compensation plan” as described in
IRCode Sec. 409A?
NO, the Program is not deferred compensation. New IR Code Sec. 409A defines a
nonqualified deferred compensation plan as any plan that provides for the deferral of
compensation other than a qualified employer plan or any bona fide vacation leave, sick leave,
compensatory time, disability pay, or death benefit plan. The IRS provided the definition of
“death benefit plan” on December 21, 2004 with the issuance of Notice 2005-1. The Program
complies with the definition as set forth in Treas. Reg. 1.31.3121(v)(2)-1(b)(4)(iv)(C).
 The Program was developed for the primary purpose of providing death benefits through
life insurance. The new rules targets certain nonqualified deferred compensation plans and
specifically excludes death benefit plans from further compliance requirements.
8. Does IRC § 264(a) prevents the deduction of premiums paid by a participating
employer in the Program?
NO, IRC § 264 does not limit the deduction under the Program. IRC § 264(a) prevents
employers from becoming beneficiaries of insurance policies on their employees’ lives.
Employers may not deduct premiums as business expenses where the employer may be directly
or indirectly treated as a beneficiary under the policy. An employer is treated as beneficiary of
the policy if it can borrow on the policy, surrender the policy for its cash value, or use the cash
value of the policy as collateral for a loan. In addition, the employer will be treated as a
beneficiary if it is a named beneficiary under the policy or if a creditor of the employer is a
beneficiary under the policy. Treas. Reg.§ 1.264-1(b). Thus, an employer may not deduct
premiums if it retains the right to receive either a return on the cash value of the policy or a return
of its premium payments. Rev. Rul. 70-148. Similarly, a corporation may not deduct premiums
paid under an employee's insurance contract that requires assignment of the policies to the
employer and grants the employer the exclusive right to surrender the policies and receive cash
surrender values. Treas. Reg.§ 1.264-1(b).
 The Program does not allow the participating employers to benefit directly or indirectly
as beneficiaries of policies that are funded by the Program. Neither the employer nor any of its
creditors may be a named beneficiary, or may access or borrow against the value of the policy.
Where the Program operates exclusively through a third-party (i.e., Advisors), the deduction to
participating employers should not be compromised.
9. Are employer contributions to the Program, currently deductible by the employer,
subject only to limitations on reasonable compensation?
YES, the contributions are currently deductible. IRC § 162(a) (1) allows a deduction for
ordinary and necessary business expenses including “a reasonable allowance for salaries or other
compensation for personal services actually rendered.” Specifically, amounts paid for sickness,
accident, welfare, medical and similar benefits are deductible under Section 162(a)(1). Treas
Reg.§1.162-10(a). (No deduction would be allowed, however, if under any circumstances, the 8
amounts may be used to provide benefits under certain deferred compensation plans. Id.) The test
is whether the amounts are reasonable and are, in fact, payment for services. Treas.Reg. §1.162-
7(a).
 Where the actuarially determined contributions are equal to the cost of the current death
benefit protection provided under the Program, there are no factors that should question whether
compensation would be reasonable. Where these benefits would be provided to employees of
participating employers as compensation for services – rather than, for example, as stock
dividends or payment for property.
10. Does the Program meet the requirements of a “group insurance arrangement”
within the meaning of Labor Reg. § 2520.104-21?
YES, the Program qualifies as a group insurance arrangement. Labor Reg. § 2520.104-21
exempts certain welfare benefit plans from reporting and disclosure requirements under ERISA.
Specifically, the administrator of group insurance arrangements which cover fewer than 100
participants at the beginning of the plan year and which meet certain requirements do not have to
file a terminal report regarding the plan. Labor Reg. § 2520.104-21(a). The group insurance
arrangement must:
1. provide benefits to two or more unaffiliated employers, but not in connection
with a multi-employer plan;
2. fully insure one or more welfare plans of each participating employer through
insurance contracts purchased solely by the employer or partly by the employer
and partly by the employee, with all benefit payments made by the insurance
company (under certain conditions); and9
Revised 1/27/05
3. use a trust (or other entity such as a trade association) as the holder of the
insurance contracts and uses a trust for payment of the premiums to the insurance
company.
Labor Reg. § 2520.104-21(a).
 The first requirement is satisfied by providing benefits to two ore more unaffiliated
employers. The Program should be considered a multi-employer plan. (See #2, above) A multiemployer
plan is a plan maintained under one or more collective bargaining agreements between
one or more employee organizations and more than one employer, to which more than one
employer is required to contribute. IRC § 414(f)(1); ERISA § 3(37). The Program is not created
pursuant to a collective bargaining agreement. The Program is not an “employee organization” as
that term is defined by ERISA. An “employee organization” is an organization in which
employees participate that exists to deal with employers concerning employee benefit plans or
other matters incidental to the employment relationship. ERISA§3(4). The Program exists for
the sole purpose of providing death benefits to the employees of participating employers. The
Program is not an organization in which employees participate to deal with employers.
 The Program satisfies the second requirement by insuring a group insurance benefit for
each participating employer through insurance contracts purchased solely by the employer. All
benefit payments will be made directly by the insurance company to the employees.
The Program appears to meet the third requirement of the regulation. Out of prudence
the Administrator is complying with the ERISA rules of Reporting and Disclosure. Pursuant to
Notice 90-24 and 2002-24, an IRS Form 5500 is not required to be filed. A Summary Plan
Description is provided to the Employer but is not required to be filed with DOL.
11. Is the Program considered a Multiple Employer Welfare Arrangement (“MEWA”)
under ERISA?
NO, the Program has no MEWA compliance issues. Under ERISA § 3(40)(A), a MEWA
is an employee welfare benefit plan or other arrangement established or maintained to offer or
provide any benefit of the type provided by ERISA welfare benefit plans – which includes death
benefits under ERISA § 3(1) – to employees or beneficiaries of two or more employers, including
one or more self-employed individuals. The definition specifically excludes arrangements
established or maintained pursuant to a collective bargaining agreement or by rural electric
cooperatives or rural cooperating telephone associations. Also, for purposes of determining
whether an arrangement covers multiple employers, or only one, a group of trades or businesses
will be deemed to be a single employer if they are under “common control” as defined in IRC §
414(c) and Treas. Reg. § 1.44(1). The Program will qualify as a Single Plan. ( DOL Advisory
Opinion 83-22A and 2003-17A, EBIA’s ERISA Compliance Manual Sec. XIX.D.)
12. Is the Program in compliance with The COLI Best Practices and the 2006 Tax Law
changes?
YES. Because of the use of the co-ownership arrangement the provisions of
the COLI Best Practices are followed. The participant having the right to name a beneficiary
during employment is a safe harbor for compliance purposes. This approach can also be
wrapped around an existing COLI program to provide compliance on a tax deductible basis. 10
Revised 1/27/05
13. Is the Plan in compliance with the guidelines of New Tax Circular 230?
YES. On December 20, 2004, Treasury and the IRS issued Circular 230 regulations
(T.D.9165) addressing opinion standards for tax professionals who provide advice on
federal tax issues or submissions to the IRS. The Plan is not a “tax shelter “ or a
potentially abusive tax shelter as defined in IRC 6011, 6111 or 6112. It is not a listed
transaction and the Plan’s principal purpose or significant purpose is not the avoidance or
evasion of any tax, the Plan is not subject to any confidentiality agreement or subject to
any contractual protection. The Plan does not fall into any one of the five (5) prohibited
areas (see Q&A#1), See Tax Memo p29-32.