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Year-End Benefit Planning and Accounting Treatment
A '79 group benefit plan has funding and timing opportunities similar to qualified plans without the added expenses and discrimination testing of '401(a)-type plans. The reporting at the employer level is less complex and draconian. The difference is due to the fact that the group term life segment payment (from an accounting standpoint) should be treated like a group term life insurance premium payment, i.e., the full premium payment should be shown as an expense each year. Nevertheless, as with all accounting issues, it is up to the employer's accountant to interpret FASB statements and opinions, and make the final decision as to how individual transactions are reflected on the employer's financial statements.
Group Term Life Insurance
The accounting for the group term life premium is straightforward. The group term life premium would be shown as an expense on the employer's income statement. Since the group term life premium represents the cost of the death benefit and does not increase the cash value, the accounting treatment should be the same as a group term life insurance policy. The journal entry below is an example of how an employer would record the payment of the group term life premium (e.g., where the premium is $85,000, total premium is $100,000). Although account titles will vary from employer to employer, since the employer is not the beneficiary of the group term life death benefit, the account title for the expense should reflect that the expense was incurred for an employee benefit. An account title such as “Expense ' life insurance” may be misleading since this is a title often used for key person insurance, where the employer is the beneficiary of the policy. Since the employer cannot be beneficiary of the group term life premium, an account title such as “Expense ' employee benefits” is more appropriate.
Expense ' Employee
Benefits $85,000
Cash $85,000
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