Group-term life insurance purchased for employees
General rule
There shall be included in the gross income of an employee for the taxable year an amount equal to the cost of group-term life insurance on his life provided for part or all of such year under a policy (or policies) carried directly or indirectly by his employer (or employers); but only to the extent that such cost exceeds the sum of—
the cost of $50,000 of such insurance, and
the amount (if any) paid by the employee toward the purchase of such insurance.
Exceptions
Subsection (a) shall not apply to—
the cost of group-term life insurance on the life of an individual which is provided under a policy carried directly or indirectly by an employer after such individual has terminated his employment with such employer and is disabled (within the meaning of section 72(m)(7)),
the cost of any portion of the group-term life insurance on the life of an employee provided during part or all of the taxable year of the employee under which—
the employer is directly or indirectly the beneficiary, or
a person described in section 170(c) is the sole beneficiary,
for the entire period during such taxable year for which the employee receives such insurance, and
the cost of any group-term life insurance which is provided under a contract to which section 72(m)(3) applies.
Determination of cost of insurance
Nondiscrimination requirements
In general
In the case of a discriminatory group-term life insurance plan—
subsection (a)(1) shall not apply with respect to any key employee, and
the cost of group-term life insurance on the life of any key employee shall be the greater of—
such cost determined without regard to subsection (c), or
such cost determined with regard to subsection (c).
Discriminatory group-term life insurance plan
For purposes of this subsection, the term “discriminatory group-term life insurance plan” means any plan of an employer for providing group-term life insurance unless—
the plan does not discriminate in favor of key employees as to eligibility to participate, and
the type and amount of benefits available under the plan do not discriminate in favor of participants who are key employees.
Nondiscriminatory eligibility classification
In general
A plan does not meet requirements of subparagraph (A) of paragraph (2) unless—
such plan benefits 70 percent or more of all employees of the employer,
at least 85 percent of all employees who are participants under the plan are not key employees,
such plan benefits such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of key employees, or
in the case of a plan which is part of a cafeteria plan, the requirements of section 125 are met.
Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from consideration—
employees who have not completed 3 years of service;
part-time or seasonal employees;
employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if the benefits provided under the plan were the subject of good faith bargaining between such employee representatives and such employer or employers; and
employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
Nondiscriminatory benefits
Special rule
Key employee defined
Exemption for church plans
In general
Definitions
For purposes of subparagraph (A), the terms “church plan” and “church employee” have the meaning given such terms by paragraphs (1) and (3)(B) of section 414(e), respectively, except that—
section 414(e) shall be applied by substituting “section 501(c)(3)” for “section 501” each place it appears, and
the term “church employee” shall not include an employee of—
an organization described in section 170(b)(1)(A)(ii) above the secondary school level (other than a school for religious training),
an organization described in section 170(b)(1)(A)(iii), and
an organization described in section 501(c)(3), the basis of the exemption for which is substantially similar to the basis for exemption of an organization described in subclause (II).
Treatment of former employees
Employee includes former employee
Exception for life insurance purchased in connection with qualified transfer of excess pension assets
Source
(Added Pub. L. 88–272, title II, § 204(a)(1),Notes
Editorial Notes
Amendments
Statutory Notes and Related Subsidiaries
Effective Date of 2012 Amendment
Effective Date of 1990 Amendment
Effective Date of 1989 Amendment
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
In general.—
The amendments made by this section [enacting section 89 of this title and amending this section and sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title] shall apply to years beginning after the later of—
the earlier of—
the date which is 3 months after the date on which the Secretary of the Treasury or his delegate issues such regulations as are necessary to carry out the provisions of section 89 of the Internal Revenue Code of 1986 (as added by this section), or
Notwithstanding the preceding sentence, the amendments made by subsections (e)(1) and (i)(3)(C) [amending section 414 of this title] shall, to the extent they relate to sections 106, 162(i)(2), and 162(k) of the Internal Revenue Code of 1986, apply to years beginning after 1986.
Special rule for collective bargaining plan.—
In the case of a plan maintained pursuant to 1 or more collective bargaining agreements between employee representatives and 1 or more employers ratified before
the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof after
A plan shall not be required to take into account employees to which the preceding sentence applies for purposes of applying section 89 of the Internal Revenue Code of 1986 (as added by this section) to employees to which the preceding sentence does not apply for any year preceding the year described in the preceding sentence.
Exception for certain group-term insurance plans.—
In the case of a plan described in section 223(d)(2) of the Tax Reform Act of 1984 [section 232(d)(2) of Pub. L. 98–369, set out as an Effective Date of 1984 Amendment note below], such plan shall be treated as meeting the requirements of section 89 of the Internal Revenue Code of 1986 (as added by this section) with respect to individuals described in section 223(d)(2) of such Act. An employer may elect to disregard such individuals in applying section 89 of such Code (as so added) to other employees of the employer.
Special rule for church plans.—
In the case of a church plan (within the meaning of section 414(e)(3) of the Internal Revenue Code of 1986) maintaining an insured accident and health plan, the amendments made by this section [enacting section 89 of this title and amending this section and sections 105, 106, 117, 120, 125, 127, 129, 132, 414, 505, 6039D, and 6652 of this title] shall apply to years beginning after
Cafeteria plans.—
The amendments made by subsection (d)(2) [amending sections 3121 and 3306 of this title and section 409 of Title 42, The Public Health and Welfare] shall apply to taxable years beginning after
Certain plans maintained by educational institutions.—
If an educational organization described in section 170(b)(1)(A)(ii) of the Internal Revenue Code of 1986 makes an election under this paragraph with respect to a plan described in section 125(c)(2)(C) of such Code, the amendments made by this section shall apply with respect to such plan for plan years beginning after the date of the enactment of this Act [
Effective Date of 1984 Amendment
In general.—
Except as provided in paragraph (2), the amendments made by this section [amending this section and section 83 of this title] shall apply to taxable years beginning after
Inclusion of former employees in the case of existing group-term insurance plans.—
In general.—
The amendments made by subsection (a) [amending this section] shall not apply—
to any group-term life insurance plan of the employer in existence on
to any group-term life insurance plan of the employer (or a successor employer) which is a comparable successor to a plan described in clause (i),
but only with respect to an individual who attained age 55 on or before
Special rule in the case of discriminatory group-term life insurance plan.—
In the case of any plan which, after
Benefits to certain retired individuals not taken into account for purposes of determining whether plan is discriminatory.—
For purposes of determining whether a plan described in subparagraph (A) meets the requirements of section 79(d) of the Internal Revenue Code of 1986 with respect to group-term life insurance for former employees, coverage provided to employees who retired on or before
Comparable successor plans.—
For purposes of subparagraph (A), a plan shall not fail to be treated as a comparable successor to a plan described in subparagraph (A)(i) with respect to any employee whose benefits do not increase under the successor plan.”