This article presents two case studies, one illustrating accounting for defined-contribution nonqualified deferred-compensation plans and the other illustrating accounting for cash value life insurance. As background it reviews the traits of nonqualified deferred-compensation plans, focusing on the defined-contribution variation; and it reviews and discusses the related accounting and income tax issues and concepts. It seeks to accomplish three things: to educate financial services professionals who are active in or want to enter the nonqualified deferred-compensation market; to provide background information for employers considering installing such plans; and to provide background and guidance for employers’ accounting and legal counsel who will be working on these types of plans.
Author: David K. Smucker, CPA, CLU, ChFC, MSM, is a retired technical director of the Advanced Consulting Group of a major life insurer. He holds a BA in history from Ohio State University, and an MSM from The American College. He earned his CPA certificate in 1973. Mr. Smucker is a frequent contributor to financial services and tax publications. In the Advanced Consulting Group he advised producers, CPAs, and attorneys on tax and other aspects of executive compensation, business succession planning, and estate planning. He has developed and presented life insurance continuing education programs to CPAs and financial service producers on all of those topics. In retirement he maintains a CPA practice limited to consulting on and administering split-dollar arrangements.