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
Number of times losses occur, and their severity. These statistics measure expectation of loss, and are critical in establishing a basic premium or the pure cost of protection that is based ...
Organization that is part of a preferred provider organization (PPO) in which enrollees select an EPO provider to act as their primary care physician and serve as the gatekeeper. This ...
Same as term Contribution: principle of equity in property, casualty, and health insurance. When two or more policies apply to the loss, each policy pays its part of the loss, unless its ...
Group coverage for members of a fraternal association, usually on a nonprofit basis. ...
System of charges to an insured that fluctuates according to the loss experience of that insured. This is a form of experience rating. ...
Correction of a contract containing a mistake in order to prevent a party to that contract from gaining from that mistake. For example, if $1,000,000, instead of the correct amount of ...
Statute that makes it illegal in most states for an agent to rebate (return) any portion of his commission as an inducement for an applicant to purchase insurance from him. ...
Total amount of commissions and expense allowances paid by the reinsurer to its ceding company minus the total amount of reinsurance commissions and expense allowances that, in turn, its ...
Commission that is paid based on how profitable a particular type of business proves to be that is written by an agent. ...
Have a question or comment?
We're here to help.