Group term life insurance (GTLI) coverage provides a lump sum nontaxable death
benet to the named beneciary or beneciaries of individuals covered under the
plan. Employers that oer GTLI benets to their employees have several compliance
obligations related to this popular employee benet.
Whether the premium for GTLI is entirely employer-paid (as is the most common
practice for basic life policies) or employee-paid (referred to as supplemental, voluntary,
or optional life policies, to be referenced herein as “supplemental”), GTLI benets must
follow applicable ERISA duciary, disclosure, and reporting requirements and IRC Section
79 rules on nondiscrimination and imputed income. Courts across the country have
found employers liable for GTLI administration failures under ERISA; this is also a DOL
enforcement focus. Specically, the consequences of noncompliance include liability for
the benet, penalties, and loss of tax-advantage status.
This guide provides an overview of the compliance obligations related to GTLI under
ERISA and the Internal Revenue Code, along with practical tips to meet those obligations.
Employers should consult with their legal counsel or tax advisor for advice specic to
their plan design and administration practices.
OVERVIEW OF GTLI PLAN DESIGNS AND FEATURES
Most basic and supplemental GTLI plans have several features in common, the details of
which are negotiated between employers and insurance carriers to meet the employer’s
goals for its GTLI program. For example, GTLI plans may include an age reduction formula
that reduces the default death benet when employees reach certain milestone ages
(typically starting at age 65, although age reduction formulas can vary). In addition,
state insurance laws often require GTLI plans to include a conversion option that gives
employees a time-limited opportunity to convert group coverage to an individual whole
life policy without evidence of insurability (EOI) when eligibility for the policy ceases due
to an employee’s termination, leave of absence, or reduction in standard hours. Group
plans may also be designed to include a conversion option for lost coverage due to age
reduction formulas or the eligibility status of dependent children.
Premium rates for converted coverage that does not require EOI are generally cost
prohibitive but may be attractive to covered employees or dependent children whose
health status renders them otherwise uninsurable. Some GTLI plans include a portability
option, which allows employees to “port” the coverage post-termination according to
rates set by the carrier. GTLI plans may also include a waiver of premium for disability
feature, which applies when an employee becomes disabled according to the carrier’s
denition of disability. Similarly, some GTLI plans include a sickness/injury provision,
which allows coverage to continue for a period of time following an employee’s last day
of work if premiums are paid.
Many employers couple their GTLI plans with accidental death and dismemberment
(AD&D) coverage, as explained below.
GROUP TERM LIFE INSURANCE: A GUIDE
FOR EMPLOYERS
Corporate Benets
Compliance
Employers that oer
GTLI benets should
closely review the
compliance obligations
related to this benet
to ensure the plan
satises applicable ERISA
duciary obligations and
IRC Section 79 rules on
nondiscrimination and
imputed income.
Group Term Life Insurance: A Guide for Employers
Pa
ge 2 of 9
Basic Life Insurance
In the context of employee benets, basic life insurance generally refers to fully employer-paid GTLI that is provided to all benets-
eligible employees according to a death benet schedule that is either a at dollar amount (such as $100,000) or a multiple of
salary to a maximum threshold (such as two times salary to a maximum of $200,000). Basic life insurance coverage is generally
oered on a fully guaranteed issue (GI) basis, meaning that employees are not required to satisfy EOI criteria to qualify for the
group coverage.
Supplemental Life Insurance
Supplemental life insurance generally refers to fully employee-paid GTLI that is made available to all benets-eligible employees
on an elective (voluntary) basis. Supplemental life insurance may be oered in xed dollar amount increments (such as $5,000
or $10,000 increments) or in multiples of salary. The maximum supplemental life election allowed by the carrier should specify
whether the limit is inclusive or exclusive of employer-paid basic life coverage amounts. Employers that implement new
supplemental life insurance benets are typically required to achieve a minimum level of employee participation, and carriers
frequently oer robust enrollment programs to encourage employee participation in these benet plans.
Supplemental life insurance plan designs generally provide a specied amount of coverage that is made available on a GI basis
exclusively to employees who make a supplemental life election upon their initial election opportunity. Employees who forgo the
purchase of supplemental life coverage upon their initial opportunity, or who initially elect less than the maximum GI coverage
amount, will generally be required to satisfy EOI requirements for any subsequent supplemental life elections (referred to as “late
entrant” elections).
Supplemental life insurance is typically oered according to age-banded rates in ve-year increments, where the employee’s
age is measured according to terms agreed upon with the carrier (e.g., start of calendar month or year, end of calendar month or
year, or actual date of birth). Employers that oer supplemental life insurance for employees often include options for enrolled
employees to elect supplemental spouse/domestic partner and dependent child coverage according to benet schedules that
may reect a xed dollar limit of coverage or a xed percentage of the employee’s own supplemental life election. The age-
banded rates for supplemental spouse/domestic partner coverage may be measured according to the employee’s age or the age
of the spouse/domestic partner, depending on the employer’s plan administration preference and the options available from
the carrier. The rates for supplemental dependent child coverage are typically uniform per increment of coverage (i.e., they are
not generally age banded); the age parameters for supplemental dependent child coverage can vary by carrier but often exclude
newborns.
AD&D Insurance
AD&D coverage provides a benet exclusively for a death or dismemberment caused by an accident. Many GTLI carriers require
employers to purchase group AD&D coverage in connection with basic life insurance plans, and some also require employers to
oer supplemental AD&D coverage in connection with supplemental life insurance plans. The benet schedules for AD&D policies
often mimic the GTLI benet schedules for ease of administration and employee education, but alternative AD&D plan designs
may be available on a case-by-case basis. When the death of a covered participant qualies under the terms of both a GTLI policy
and an AD&D policy, death benets are payable under both policies.
GTLI ERISA REQUIREMENTS
ERISA Applicability
ERISA denes an employee welfare benet plan as a plan, fund or program that is established or maintained by an employer for
the purposes of providing specically listed benets, through the purchase of insurance or otherwise, to participants and their
beneciaries. Among the benets listed in the ERISA plan denition are benets in the event of sickness, accident, disability or
death. As a result, employer-sponsored GTLI and AD&D policies are ERISA plans subject to ERISA’s plan document, amendment/
termination, summary plan description (SPD), Form 5500 reporting, Summary Annual Report (SAR), disclosure, claim procedures,
and duciary requirements (including following the plan terms). For plans exempted from ERISA (e.g., governmental and church
plans), state law, which is outside the scope of this publication, will apply. Employers sponsoring these plans should consult
with their carriers and legal counsel to understand their legal obligations. For an overview of ERISA compliance, see the PPI
publication ERISA Compliance Considerations for Health and Welfare Benet Plans.
However, the DOL regulations provide a safe harbor from ERISA’s application for certain “voluntary” insurance arrangements
where employees pay the full premium for coverage, and the employer has minimal involvement (referred to as the “voluntary
plan safe harbor” but not necessarily linked to the term “voluntary life insurance,” which simply means fully employee-paid
Group Term Life Insurance: A Guide for Employers
Pa
ge 3 of 9
coverage). To qualify for the ERISA voluntary plan safe harbor, the employer’s functions must be limited to allowing an insurer to
oer and publicize the arrangement to employees, collecting premiums through post-tax payroll deductions and remitting those
premiums to the insurer. The employer must not put any conditions on an employee’s election of benets and must not prot
from it; importantly, the employer must not endorse the arrangement. The fact that employees pay their premiums post-tax is
not a conclusive factor in determining whether ERISA applies. The plan must be scrutinized for employer endorsement (e.g., using
the employer’s name or associating the plan with other employer plans, assisting employees with enrollment and claim forms,
negotiating with insurers, and record keeping beyond maintaining a list of enrolled employees).
Additionally, employers that seek to defend the plan’s status under the ERISA voluntary plan safe harbor should make clear in
enrollment materials and other employee communications that the arrangement is not an employer-sponsored ERISA plan (in
contrast to other available benets) and employee questions about the program should be redirected to the insurer.
See the PPI publication ERISA Compliance Considerations for Health and Welfare Benefit Plans for a more detailed discussion
of the ERISA voluntary plan safe harbor.
Fiduciary Status
Under ERISA, parties that hold or exercise discretionary authority over plan management or assets are duciaries. An employer
may be a plan duciary by design (i.e., named in plan) or by performing certain plan functions. In the GTLI context, employers
can become functional duciaries by providing administrative services related to the plan, such as assisting with enrollment,
distributing claim forms, and elding questions about coverage.
Whether an employer is a functional duciary requires a fact-intensive analysis of the challenged act. Importantly, unknowingly
acting as a duciary does not relieve GTLI plan sponsors from liability. The status is signicant since duciaries are held to a higher
code of conduct, similar to trustees, that involves duties of loyalty, prudence and impartiality.
Administering GTLI Benets
Administering life insurance coverage carries duciary risk. For example, courts have held that employers breach their plan
duciary duties when they accept premiums for nonexistent coverage (e.g., where a participant is ineligible, EOI has not been
approved, or coverage has lapsed). Dependent child eligibility, which varies by plan and ends at dierent ages and/or by disability
or student status, must be closely monitored. Similar to when an employer provides inaccurate benet summaries, acceptance
of premiums leads employees to believe their coverage is in eect. ERISA participants have a right to accurate information;
consequently, a plan administrator’s provision of inaccurate coverage information may be a breach of duciary duty.
Employers may also be acting as duciaries when administering GTLI beneciary designations. Some courts have found an
employer’s failure to relay pertinent information to the insurer to be a breach of duciary duty. For example, an employer’s failure
to maintain accurate beneciary records (leading the insurer to pay death benets to an incorrect beneciary) may make the
employer liable for the payment of death benets to the correct beneciary. Employers should ensure that the plan document
describes procedures for designating and changing beneciaries and claim payment procedures if no beneciary designation is
made or if the designated beneciary is a minor.
Practical Tip:
Since the consequences of ERISA noncompliance are signicant and the endorsement determination is
highly fact-specic, employers should seek a determination from their legal counsel before relying on
ERISA’s voluntary plan safe harbor.
Practical Tip:
Employers should conrm their ERISA duciary status in relation to their GTLI benet oering with their
legal counsel. An employer may be a plan duciary by design (i.e., named in the plan) or by performing
certain plan functions.
Practical Tip:
Employers should establish procedures to ensure that they are processing premium deductions only for
eligible coverage and notifying employees when coverage ends or is reduced.
Group Term Life Insurance: A Guide for Employers
Pa
ge 4 of 9
Employers may need to respond to coverage inquiries from a deceased participant’s family member who is not the designated
beneciary (but may have assumed otherwise). Great care must be taken to maintain accurate beneciary designation records
with clear procedures for participants to change those designations in accordance with the plan terms. When responding to a
participant’s family member who is not the designated beneciary, employers (as GTLI plan administrators) may indicate that
the inquiring party is not entitled to GTLI benets without providing further details regarding the benet amount or the named
beneciary. Given the sensitive nature of such inquiries, employers should review such communications with legal counsel and
should recognize the risk that benet entitlements may be challenged.
Conversion and Portability Responsibilities
Similar duciary obligations apply when employers communicate options to continue coverage when eligibility for some or all of
a GTLI benet terminates. While most employers are familiar with COBRA and state continuation rights and notice requirements
that arise when group health plan coverage ends, they may be less attuned to potential notice obligations when GTLI coverages
end. To be clear, GTLI coverage is not subject to COBRA or state health coverage continuation laws, but notices regarding
conversion and/or portability rights may need to be distributed when a covered employee loses GTLI coverage, depending on the
plan terms.
Typically, GTLI coverage ends when active employment ends or when a participant otherwise ceases to meet the eligibility
criteria for coverage (including the denition of an eligible dependent child). GTLI plans often include a right to convert group
coverage to an individual policy and sometimes also include a portability provision. There may also be a waiver of premium for
disability benet or a sickness/injury continuation option. These features enable employees to continue coverage in some form
when they would otherwise lose eligibility. While not required under ERISA, many state insurance laws require carriers to provide
certain conversion privileges. The conditions and processes for exercising such continuation options are controlled by the terms
of the specic plan. Beyond that, carrier agreements may require employers to assist with meeting notice requirements related to
conversion privileges.
First, employers should conrm the details regarding whether the employer or the carrier is responsible for distributing
conversion or portability notices and when and how they must be distributed. These details are generally memorialized in plan
documents or carrier agreements and vary by carrier. Employers should review the plan terms to conrm the specic information
that needs to be provided to satisfy the notice requirement.
Second, even if the carrier is responsible for providing conversion or portability notices, employers should have consistent
procedures for responding to life coverage information requests from employees. Note that FMLA only provides protection
for health benets, not non-health benets such as life or disability coverage. The eligibility terms of the GTLI plan document
determine when coverage ends, and timelines can vary depending on the need for leave. Participants who lose eligibility
based on leave related to a terminal illness are of particular concern since they are unlikely to obtain life coverage elsewhere.
Understandably, these employees and family members are more likely to ask questions about benets entitlements.
Practical Tip:
Employers sponsoring GTLI plans should take care to understand their administrative obligations relative
to the applicable continuation terms of the plan. Importantly, employers should be aware that required
notices are not necessarily handled by the carrier, sometimes leaving the employer legally responsible for
notice failures. Employers should ensure that proper procedures are in place to provide adequate notices
and accurately respond to coverage inquiries to avoid duciary liability for claims that can arise when
participants are deprived of GTLI conversion or portability rights.
Practical Tip:
Employers that are responsible for providing GTLI conversion or portability notices should maintain
documentation of mailing and delivery (e.g., rst class mail return receipt requested) according to the
employer’s record retention policies.
Practical Tip:
As duciaries, employers should take great care to adequately communicate GTLI eligibility requirements
(including GI and EOI requirements, dependent child eligibility, age-banded rates and recurring voluntary
life election opportunities throughout the life cycle of the employee), ensure premiums are only collected
on veried active coverage, and maintain accurate beneciary designations.
Group Term Life Insurance: A Guide for Employers
Pa
ge 5 of 9
Employers should include a description of continuation options that reference applicable plan terms with any leave policies,
leave communications, and oboarding materials. Anyone designated to respond to life coverage inquiries should be trained
in when and how a group plan can be converted to an individual policy, ported, or continued on life waiver of premium or
during sickness/injury. Importantly, an employer’s response to life coverage inquiries should not be limited to answering precise
questions because employees may not know which specic questions to ask. Meaning, there should be no potentially harmful
omissions (e.g., conrming a plan’s right to convert coverage without mentioning the deadline to exercise that right). Oversights
and omissions can be avoided by furnishing the life plan document and SPD to participants upon receipt of an inquiry, even if the
documents were previously provided.
GTLI SECTION 79 REQUIREMENTS
Introduction
In general, all employer-provided benets, including GTLI, are taxable at the federal level unless the Internal Revenue Code (IRC)
provides a specic exclusion. (Note that state taxation considerations are outside the scope of this publication.) Even where
employees pay the full cost of supplemental coverage (also known as voluntary or optional, referred to herein as “supplemental”),
IRC Section 79 requires employers to tax the benet to the extent the employment relationship allows employees to benet from
group rates that are better than the uniform IRS Premium Table rates (hereinafter “Table rates” or “Table”; see Appendix A, IRS
Premium Table Rates Cost Per $1,000 of Coverage Per Month). Section 79 provides a tax exclusion for the rst $50,000 of GTLI
coverage, as long as certain nondiscrimination requirements are met. Any coverage amount above $50,000, or coverage that does
not meet Section 79’s nondiscrimination requirements, is taxable to the employee.
Life insurance provided to fewer than ten employees will not qualify as GTLI under Section 79 except for: 1) certain insurance
provided to all full-time employees; or 2) certain plans covering employees of multiple employers (e.g., union plans). Employers
with life insurance plans covering fewer than ten employees should conrm Section 79 applicability with their tax advisor or legal
counsel.
Section 79 Applicability: The “Straddle Rule” for Supplemental Coverage
Section 79 rules apply to GTLI coverage that is carried by the employer, also referred to as “employer-provided” coverage. The
concept of employer-provided coverage means: 1) the employer either pays for any part of the cost of the GTLI directly (or
employees pay premiums via pre-tax salary reductions); or 2) the employer arranges for employees to make premium payments
(i.e., via post-tax salary reductions) and the premiums paid by at least one employee subsidize those paid by at least one other
employee. Whether such subsidizing (known as the “Straddle Rule”) occurs is determined by whether the rates straddle the Table
rates (see Appendix A). The Table establishes gradually increasing rates for each $1,000 of coverage per month based on age (in
ve-year age brackets). For purposes of the Table age brackets, an employee’s age is determined by their age at the end of the
taxable year, regardless of whether the employee is covered for employer-provided GTLI as of the end of the taxable year.
If the employee-paid supplemental coverage is under a separate policy from the employer-paid basic coverage, it will not be
considered employer-provided when additional requirements are satised. A policy that is not considered employer-provided
falls outside Section 79. Employees still pay for such coverage post-tax, but they are not subject to Section 79’s imputed income
or nondiscrimination rules. Specically, to be exempted from Section 79, premiums charged for supplemental coverage must
be underwritten independently from the amounts charged for basic coverage (e.g., not packaged together so that the basic life
Practical Tip:
Employers should take steps to ensure that all applicable conversion, portability, waiver of premium,
or sickness/injury continuation rights and rules – especially those regarding deadlines – are clearly,
completely, accurately, and timely communicated to employees. Employers should include a description of
continuation options with reference to applicable plan terms with any leave policies, leave communications,
and oboarding materials.
Practical Tip:
This broad denition of “employer-provided” will likely include many GTLI plans oered by employers, since
employers typically either 1) pay the GTLI coverage cost themselves; or 2) arrange for their employees to
pay the cost through some sort of salary reduction based on group rates that straddle the Table rates.
Group Term Life Insurance: A Guide for Employers
Pa
ge 6 of 9
coverage would be subject to re-rating if supplemental coverage is terminated). Additionally, the premiums charged to employees
must not “straddle” the Table rates.
GTLI Imputed Income Rules
The value of GTLI coverage in excess of the excludable amount ($50,000, assuming nondiscrimination requirements are satised)
must be imputed back to the employee using Table rates, regardless of the premium rates charged by the carrier. As noted in
the Section 79 Applicability sub-section above, GTLI coverage requiring income imputing includes supplemental coverage that
is fully employee-paid with post-tax dollars under a policy that is deemed employer-provided (either because this coverage is
underwritten jointly with the employer-paid coverage or because the rates straddle the Table rates).
Importantly, the GTLI exclusion, and therefore also the net amount of coverage subject to the imputed income calculation, is
determined on a calendar-month basis. For purposes of determining the employee’s tax liability, all employer-provided GTLI
coverage on the employee’s life provided during any calendar month or portion thereof is considered when applying the $50,000
exclusion. There are no tax consequences to the employee for any given calendar month if the total amount of such coverage for
that month does not exceed $50,000 (assuming nondiscrimination requirements are satised). However, if the employee receives
more than $50,000 of employer-provided GTLI coverage on their own life for a period of coverage (a calendar month or portion
thereof), then the value of the coverage amount (based on Table rates) in excess of $50,000 – less any premium costs paid by
the employee with post-tax contributions – must be included in the employee’s gross income for tax purposes. Employers must
consult with their tax advisors on tax withholding and reporting specics.
The Straddle Rule: Whether Employee-Paid Post-Tax Coverage Under a Separate Policy Is Subject to Section 79
Example: Coverage paid by employees post-tax at straddling rates. ABC Corp oers supplemental GTLI
coverage with premiums paid entirely by employees via post-tax salary reductions. Premium rates for
supplemental GTLI coverage are underwritten jointly with ABC Corp’s basic coverage. The premium rates for
supplemental GTLI coverage vary from the Table rates. Employee A’s premium rate is lower than the Table
rate corresponding to her age. Employee B’s premium rate is higher than the Table rate corresponding to his
age.
Result: The supplemental coverage premium rates charged to ABC Corp Employees straddle the Table rates. The
supplemental coverage is subject to Section 79’s nondiscrimination and imputed income rules. (Note: it
doesn’t matter if the policies are underwritten jointly or independently; supplemental coverage is always
subject to Section 79 if the rates straddle the Table rates.)
Example: Coverage paid by employees post-tax at Table rates. DEF Corp oers supplemental GTLI coverage
with premiums paid entirely by employees via post-tax salary reductions. The premiums charged for
supplemental GTLI coverage are determined independently of DEF Corp’s basic GTLI coverage. All premium
rates for supplemental GTLI coverage are set at the Table rates based on the employee’s age bracket.
Result: Supplemental coverage is provided under a separate policy with premium rates that do not straddle the
Table. The supplemental coverage is not subject to Section 79’s nondiscrimination or imputed income rules.
(Note that if the rates are underwritten jointly with the employer-paid coverage, then the supplemental
coverage is subject to Section 79.)
Practical Tip:
Some states allow employees who wish to avoid the tax impact of GTLI imputed income to waive employer-
provided GTLI coverage above excludable amounts, if also permitted by the carrier contract. Employers that
wish to structure their GTLI benets to permit such waivers should conrm the details of applicable state
law or carrier restrictions.
Group Term Life Insurance: A Guide for Employers
Pa
ge 7 of 9
Calculating GTLI Imputed Income
Employers must include the value of GTLI coverage above $50,000 (assuming nondiscrimination requirements are satised) in
taxable income if the employer paid for a portion of the coverage or if the rates paid by employees “straddled” the Table rates. In
those circumstances, income must be imputed to the employee in order to tax the value of the coverage as determined by the
Table rates.
After determining the value of coverage according to the Table rates per month of coverage, that amount is reduced by the
amount, if any, that the employee paid on a post-tax basis toward the purchase of all employer-provided GTLI coverage for the
same coverage month. Employee payments toward the purchase of GTLI coverage do not include amounts contributed by pre-
tax salary reduction under a cafeteria plan or amounts paid for non-employer-provided GTLI coverage. In other words, the value
of the coverage according to the Table rates may only be reduced by post-tax employee contributions; employer contributions
and employee pre-tax contributions do not reduce the aggregate value. Note that employees who pay the full cost of employer-
provided GTLI with post-tax dollars may still have imputed taxable income if the premiums they pay are lower than the Table rates
(i.e., if the employment relationship allows them to benet from group rates that are better than the Table rates). Employees who
pay the full cost of employer-provided GTLI with post-tax dollars at or above the Table rates will have no imputed income.
Step-By-Step Process for Calculating GTLI Imputed Income
Step 1: On a per-employee per-month (PEPM) basis, determine the total amount of employer-provided GTLI
coverage (this includes coverage that is employer-paid in any part, pre-tax employee-paid coverage, and
post-tax employee-paid supplemental coverage if the rates straddle the Table rates).
Step 2: On a PEPM basis, subtract $50,000 (the excludable amount, assuming nondiscrimination requirements are
satised) from the total amount of GTLI coverage in Step 1. The net amount of GTLI coverage is subject to
the imputed income calculations described in the remaining steps.
Step 3: Use the age-bracketed Table rates to determine the PEPM value of coverage based on the employee’s age at
the end of the taxable year. Multiply the monthly value of coverage by the number of full or partial calendar
year months during which the employee had employer-provided GTLI coverage. The product reects the
gross annual value of coverage for purposes of processing imputed income for the calendar year.
Step 4: Subtract from the gross annual value of coverage (Step 3) the annual amount of any premium that was paid
by the employee with post-tax contributions. The result is the net amount of imputed income that is subject
to tax withholding and reporting for the calendar year.
Example: An employee who will turn 40 years old at the end of the calendar year receives $250,000 in employer-
provided GTLI coverage in all 12 months of the calendar year. $100,000 in coverage is paid by the employer,
while $150,000 in coverage is paid by the employee via post-tax salary deductions, totaling $100 for the
year.
After subtracting the $50,000 excludable amount (assuming a nondiscriminatory plan), this yields $200,000
in net GTLI coverage that is subject to the imputed income calculation for all 12 months of the calendar
year. According to the Table, the value per $1,000 of GTLI coverage per month for an individual age 40
through 44 is $0.10. The product of 12 (number of months of coverage) times 200 (net number of thousands
of dollars of coverage) times $0.10 (age-bracketed rate per the Table) is $240. The taxable amount of GTLI
coverage is therefore $240 for the full calendar year, regardless of the actual GTLI rate charged by the carrier.
The employee paid $100 in premium post-tax. Therefore, the remaining $140 must be imputed as income to
the employee for taxability purposes for the calendar year.
Practical Tip:
Employers should explore setting up their payroll systems to calculate GTLI imputed income ratably on a
per payroll or monthly basis throughout the year rather than performing the calculation once annually at
the end of the calendar year. An advantage of the former approach is that it avoids the exercise of going
back and capturing partial year coverage months for mid-year hires or for employees who are on a leave
of absence at the end of the calendar year. It also avoids the additional labor of calculating and processing
GTLI imputed income on a case-by-case basis for midyear employment terminations.
Group Term Life Insurance: A Guide for Employers
Pa
ge 8 of 9
GTLI Nondiscrimination Rules
Section 79 allows for the value of up to $50,000 of employer-provided GTLI coverage for an employee to be excluded from the
employee’s gross income. However, certain nondiscrimination requirements must be satised in order for all employees to benet
from the $50,000 coverage tax exclusion.
Note that Section 79’s nondiscrimination rules do not apply to certain plans maintained for church employees. This exemption is
limited to church plans as dened in Section 414. Employers seeking to rely on this exemption must consult with their tax advisor
or legal counsel on applicability.
At a high level, the nondiscrimination rules provide that employer-provided GTLI plans cannot discriminate in favor of key
employees with respect to eligibility to participate in the plan or contributions or benets under the plan. In the context of
Section 79, a key employee is dened as an ocer with annual compensation in excess of the specied threshold ($200,000 for
2022; $215,000 for 2023; $220,000 for 2024), a more-than-5% owner/shareholder or a more-than-1% owner with compensation
in excess of $150,000. Part-time or seasonal employees, full-time employees with fewer than three years of service, and certain
employees covered by a collectively bargained agreement may be excluded from testing. Former employees (e.g., retirees) are
tested separately from active employees.
When a GTLI plan fails the Section 79 nondiscrimination tests as to one or more key employees, all key employees lose the benet
of excluding from income tax the value of the rst $50,000 of employer-provided coverage. (Non-key employees are not aected
by a discriminatory plan design.) Employers that suspect their GTLI plan may not pass nondiscrimination tests and that were
previously applying the $50,000 coverage exclusion to key employees should consider alerting their key employees to anticipated
additional imputed income as soon as possible. Employers are encouraged to review the proper taxation of their specic GTLI
benets with their tax advisors.
Dependent Coverage
Section 79 does not apply to dependent life insurance, which is generally taxable. However, up to $2,000 of employer-provided
coverage for an employee’s dependent can be excluded from the employee’s gross income under Section 132 as a de minimis
fringe benet. If the dependent coverage exceeds $2,000, the entire dependent coverage value is taxable, not just the amount
over $2,000. In other words, the tax exclusion is totally lost.
However, even if the employer-provided dependent coverage amount is greater than $2,000, the dependent coverage may still be
excludable from income as a de minimis fringe benet if the excess (if any) of the cost of insurance over the amount the employee
paid for it on a post-tax basis is so small that accounting for it is unreasonable or administratively impracticable. Because the IRS
has not provided a standard for what amount would be unreasonable or administratively impracticable, employers wishing to
rely on a de minimis exclusion on dependent coverage over $2,000 must review this matter with their tax advisor or legal counsel.
Note that the de minimis fringe benet exclusion that applies to employer-provided dependent life insurance does not apply to
benets provided to domestic partners unless the domestic partner is a tax dependent of the employee, which is not common.
Like with GTLI coverage on an employee’s life under Section 79, the taxable value of employer-provided dependent coverage is
determined by the Table rates (based on the dependent’s age at the end of the taxable year). If the employee paid for dependent
coverage at rates that are below the Table rates, then the amount of imputed income equals the value calculated according to the
Table rate minus the premium paid by the employee on a post-tax basis. (Dependent life insurance cannot be purchased with pre-
tax dollars.) If the employee paid for dependent coverage at rates that are at or above the Table rates, then no income is imputed.
Practical Tip:
Employer-provided GTLI plans that oer all full-time employees the same xed dollar or multiple of salary
benet will pass the relevant eligibility and benets nondiscrimination tests (Section 79 provides a safe
harbor for these coverage designs). By contrast, GTLI plans that provide benets exclusively or at a lower
cost to key employees, or that provide a higher xed dollar or multiple of salary benet to one or more key
employees (such as a plan that provides a $200,000 benet to the company’s CEO but a $100,000 benet
to all other employees), are at risk of being discriminatory. Any GTLI plan that does not cover all benets-
eligible employees at the same xed dollar amount or multiple of salary formula requires further scrutiny
under the nondiscrimination rules.
Group Term Life Insurance: A Guide for Employers
Pa
ge 9 of 9
SUMMARY
Employers that oer GTLI benets to their employees should closely review the various compliance obligations related to this
benet to ensure that the plan complies with applicable ERISA duciary requirements, the benet design is not discriminatory,
and that GTLI imputed income is properly calculated according to the IRS Premium Table rates and reported for coverage
amounts above $50,000.
RESOURCES
IRS Group-Term Life Insurance
IRS Publication 15-B
Questions and Answers Relating to Nondiscrimination Requirements for Group-Term Life Insurance
Group Term Life Insurance: A Guide for Employers | Appendix A
Page A-1 of 1
APPENDIX A
IRS Premium Table Rates Cost Per $1,000 of Coverage Per Month
Age Cost
Under 25 $0.05
25 through 29 $0.06
30 through 34 $0.08
35 through 39 $0.09
40 through 44 $0.10
45 through 49 $0.15
50 through 54 $0.23
55 through 59 $0.43
60 through 65 $0.66
65 through 69 $1.27
70 and older $2.06
Source: IRS Publication 15-B
PPI does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not
guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the applica-tion or potential
implications of laws, regulations or policies to your specific circumstances.
11/23 (22-CB-CB-COMP-REQ0193433) Copyright © 2023 PPI. All rights reserved.
