For Plan Administrators

The new Table I rates were effective July 1, 1999 and should be used to calculate the cost of group term life insurance amounts, in excess of $50,000, provided after June 30, 1999. The old Table I rates should be used to calculate imputed income for coverage provided in 1999, prior to July 1, 1999. The new Table I rates reflect significant improvement in mortality, with the biggest rate reductions occurring at older ages. These new rates will therefore reduce the amount of taxable imputed income to employees, for coverage in excess of $50,000.

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DELAYED IMPLEMENTATION - EMPLOYEE-PAY-ALL PLANS

Rule for determining if a plan is subject to Section 79:
There is a special effective date rule concerning the use of the revised Table I rates for employee-pay-all plans in existence before the general effective date of July 1, 1999, if the policy was not carried directly or indirectly by an employer using the old Table I rates. A policy is considered to be "carried directly or indirectly" by the employer, and thus subject to Section 79, if:

the employer pays any part of the cost of life insurance, or
the employer arranges for payment of the cost of life insurance by its employees, (e.g. payroll deduction), and charges at least one employee less than the cost of his or her insurance (as determined under Table I) and at least one other employee more than the cost of his or her insurance (as determined under Table I).

If the policy would not be treated as carried directly or indirectly using the pre-July 1, 1999 Table I rates, the employer may continue to use those rates until January 1, 2003.

The significance of this determination is that an employee may be deemed to have imputed income under an employee-pay-all plan subject to Section 79, despite the fact that no employer funds were used to pay the premium. This would occur when the Table I cost for the life insurance is more than the premium actually charged to the employee, under the Section 79 plan.

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RATE CALCULATION INSTRUCTIONS

Determine the total amount of life insurance in excess of $50,000.
Divide that amount by $1,000, as the rates in Table I are based on the monthly cost of coverage.
Multiply that amount by the appropriate rate from Table I, based on the individual's attained age at the end of his/her taxable year. The result will be the employee's imputed income, per month.
Subtract from that amount whatever the employee contributed toward the cost of life insurance, per month. Note: If premium payments are made with pre-tax dollars, the premiums are considered employer paid and do not reduce the employee's taxable income.
Multiply the remainder by the number of months of coverage to determine the total amount of imputed income that should be reported on the employee's W-2 form. If the amount of life insurance protection changes during any month, find the average at the beginning and end of the month.

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RATE CALCULATION EXAMPLE

An employee is 41 years of age and is insured for $100,000 of non-contributory life coverage and $30,000 of voluntary life coverage. Coverage has been in effect since April 1, 1999. The employee pays $3.30 per month for voluntary life ($.11 per $1,000 of coverage).

$130,000 minus $50,000 equals $80,000.
$80,000 divided by $1,000 equals $80.
$80 multiplied by $.17 equals $13.60 per month (old Table for April, May and June)
$80 multiplied by $.10 equals $8.00 per month (new Table for July-December)
$13.60 minus $3.30 equals $10.30.
$8.00 minus $3.30 equals $4.70.
$10.30 multiplied by three months equals $30.90. $4.70 multiplied by six months equals $28.20.
Total amount of imputed income for 1999 equals $59.10.

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DISCLAIMER