What is Corporate Owned Life Insurance?
Corporate Owned Life Insurance (COLI) is a common funding vehicle
for non qualified deferred compensation plans. Coli is a life insurance
policy owned by the corporation that insures the lives of one or
Will use of a COLI policy to fund a "Top Hat" plan cause
the plan to be subject to ERISA provisions?
No, use of a COLI policy to fund a "Top Hat" plan will
not subject the plan to extensive ERISA provisions.
Why would an employer want to purchase COLI?
The most common reason to purchase a COLI policy is to fund a Non
Qualified Deferred Compensation plan.
Why would you want to establish a Non Qualified Deferred Compensation
- To supplement benefits provided by qualified plans.
- To reduce benefits that are limited by Internal Revenue Code
- To attract, recruit, and retain qualified employees
- To provide retirement benefits to key executives while avoiding
the administrative costs of qualified plans.
- To provide incentives for early retirement.
- To defer premature termination's (Golden Handcuffs).
- To enable the employer to provide benefits to a select few,
rather than being forced to cover nearly all employees (as would
be required with a qualified plan).
How are Non Qualified Deferred Compensation Plans categorized?
They are broken down into two categories, Deferral Plans and Supplemental
Plans. Deferral plans provide deferred benefits in lieu of a portion
of current compensation, a raise or a bonus. Supplemental plans
provide an additional fringe benefit for key executives. The plan
benefits are paid by the corporation and salary is not reduced and
When is it not advisable for a corporation to offer Non Qualified
It is best not to use with Not-for-profit organizations and in
partnerships and sole proprietorship. Additionally, they should
not be used if the corporation is not fiscally sound.