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Son of “split dollar” at American Greetings __»

One of the casualties of the Sarbanes-Oxley Act, for the most part, was a quirky executive “perk” that often amounted to millions of dollars in little-noticed, tax-advantaged pay. Called split-dollar life insurance, it worked like this: The company buys you a big life-insurance policy — one of Ken Lay’s was for $12 million — that’s yours to keep when you quit or retire; when you die, the company gets its initial premiums back (usually without interest) and your heirs get the rest.

Done right, companies figured at the time, it offered particularly attractive tax consequences, and some companies were less than transparent in their disclosures. The executives, meantime, could borrow against the policies, repaying the loan out of the proceeds at death, effectively extracting the cash without pesky tax consequences.

Then along came Sarbanes-Oxley with its prohibition on company loans to top executives, plus a push by the U.S. Treasury Department to tell the world that, yes, a free life-insurance policy has value and counts as taxable pay. Almost overnight, split-dollar deals started vanishing from the filings.

But not completely. Witness American Greetings Corp. (AM), the century-old “retailer of innovative social expression products that assist consumers in enhancing their relationships.” (And here we thought it was a greeting-card company that had come up with a prominent Web strategy.) The company had promised its chairman, the now 70-year-old Morry Weiss, a $30 million death benefit through a split-dollar arrangement. Now, some seven years after the passage of Sarbanes-Oxley, they’re paying him to give it up. To quote the company’s proxy, filed Thursday:

“After receiving legal advice from independent counsel that Mr. Weiss could have contractual claims against the company for early termination of the split dollar life insurance agreement, the Compensation Committee determined it was in the best interests of the company to resolve such claims promptly.”

To determine a fair payment, the company’s directors considered, among other things, “the cost of Mr. Weiss obtaining a comparable life insurance policy, the tax consequences of receiving additional compensation from the company, and the impact of the termination of the split dollar life insurance program on Mr. Weiss’s overall compensation package.”

That equation has yielded about $4.7 million for Weiss since February 2009. (The trust that was to benefit from the insurance policy paid American Greetings the cash value of the policy when the deal was unwound last year, some $1.2 million, though it’s not clear from the filings how that figure relates to the payments Weiss received.)

We’d love to think the company gave Weiss a big ol’ stack of those slim cards designed to hold money with a stack of Ben Franklin’s peeking out. These days, though, he probably got an e-card instead.

Image source: cmpalmer via Flickr

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