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
Performance of managerial and clerical functions related to an employee benefit insurance plan by an individual or committee that is not an original party to the benefit plan. In selecting ...
Insurance arrangement in which all employees of a given business firm are accepted into a plan regardless of their physical condition. The employee cannot be required to take a physical ...
Type of commercial form that provides coverage for business vehicles regardless of whether they are owned, leased, hired, or borrowed. The form's coverages are divided into the following ...
Insurance that follows an insured property. ...
Liability insurance exception for pollution coverage that is not both sudden and accidental from the insured's standpoint. As a result of the damage suits from such incidents as the ...
Component of necessary coverage determined by the "needs approach" to life insurance for a family. It is intended to cover last-minute expenses as well as those that surface after the death ...
Evidence of a temporary contract obliging a life or health insurance company to provide coverage as long as a premium accompanies an acceptable application. This gives the company time to ...
Term or whole life policy with a face value that increases over time. ...
Person who has been authorized by the insurance company to pay a loss (s) incurred by the insured. ...
Have a question or comment?
We're here to help.