How BOLI Works

According to the OCC in 2004-56:

Background: "Life insurance holdings can serve a number of appropriate business purposes. Because the cash flows from a BOLI policy are generally income tax-free if the institution holds the policy for its full term, BOLI can provide attractive tax-equivalent yields to help offset the rapidly rising cost of providing employee benefits." and...

Legal Authority: "...national banks and federal savings associations may purchase life insurance in connection with employee compensation and benefit plans, key person insurance, insurance to recover the cost of providing pre- and post-retirement employee benefits..."

According to the FDIC in FIL 127-2004: "It is generally not prudent for an institution to hold BOLI with an aggregate CSV that exceeds 25 percent of its Tier 1 capital."

Implementation: The bank selects and insures a group of executives that fall into the top 35% of highly compensated employees (IRC 101j). The bank is both beneficiary and owner subject to any split dollar arrangements. Death proceeds are generally income tax free.

Accounting and Compliance: Pre-purchase due diligence, quarterly compliance and annual compliance reports, and suggested monthly accounting entries, are among the items provided by our preferred plan administrator, The Pangburn Group. Samples of the reports can be seen at: www.pangburngroup.com.