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November 17, 2005

The Senate yesterday passed a bill (S. 1793) changing the rules for funding defined benefit plans. The bill includes special provisions for the airline industry, giving it 20 years to catch up on its plan funding; other industries get only seven years. The BenefitsBlog has it covered.

The bill includes another attack on "dead peasant" life insurance polices. These policies were used in a now-obsolete tax shelter to enable employers to deduct interest on loans to buy life insurance on rank and file employees to generate tax-free policy proceeds. Under the bill, employer-owned life insurance proceeds will be taxable unless purchased on the life of a highly-compensated employee or director, unless the proceeds are paid to the insured's estate or family. Currently life insurance death benefits are taxable only if the policy has been sold by the original owner to another party under the "transfer for value" rules.

Tax Analysts free coverage here.

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