N.Y. Comp. Codes R. & Regs. tit. 2, Appendices, app 11
Dear Mr. Levitt:
This is in reply to your letter of August 6, 1969, wherein you state that following the suggestions advanced at the conference held with Commissioner Thrower on June 17, 1969, your staff has prepared an Official Regulation to be promulgated by you which will establish the New York State Public Employees Group Life Insurance Plan pursuant to the legislative mandate of Chapters 336 and 371, Laws of 1969. Prior to the formal implementation of the Plan you request a ruling to the effect that the proceeds of the group life insurance will be exempt, for Federal income tax purposes, pursuant to section 101(a)(1) of the Internal Revenue Code of 1954.
You state that the development of the Official Regulation has been coordinated with the Superintendent of Insurance of the State of New York, to whose supervision the Plan will be subject. Mr. Theodore R. Ayervais, Deputy Superintendent and General Counsel of the Insurance Department, indicates in a letter dated July 30, 1969, that he has reviewed the proposed Regulation, as well as the pertinent provisions of the Retirement and Social Security Law as amended by Chapters 336 and 371, Laws of 1969, and that the provisions of the Law dealing with the guaranteed ordinary death benefits clearly encompass the elements of risk shifting and risk distribution and that the benefits provided under the Plan are in the form of group life insurance.
Section 97.1 of the proposed Regulation provides that since the inception of the New York State Employees' Retirement System and of the New York State Policemen's and Firemen's Retirement System, an ordinary death benefit has been payable upon the death in service of a member thereof pursuant to sections 60, 60-a, 360, and 360-a of the Retirement and Social Security Law, Section 97.2 provides for the establishment of the New York State Public Employees Group Life Insurance Plan in order to provide the death benefits to its members.
Honorable Arthur Levitt
Each qualified member is to be insured from January 1, 1970 through March 31, 1971, and during such effective period the insurance coverage will constitute a contractual relationship, the benefits of which will not be diminished or impaired. The State Comptroller may, from time to time, extend the effective period of insurance. In no case will the amount payable under the Plan upon the death of a member exceed $50,000.
Pursuant to section 97.3 separate reserve funds will be established, The separate funds, known as the New York State Public Employees Group Life Insurance Plan Reserve Funds are to be established within the New York State Employees' Retirement System and the New York State Policemen's and Firemen's Retirement System, respectively, to be held in trust by the State Comptroller. The funds will consist of all premiums paid by the State and by participating employers and other monies received and paid into the funds for group term life insurance purposes, and of the investment earnings upon such monies, and will be used only to pay the group term life insurance.
Based on an actuarial determination of the initial liability of the Plan, there will be segregated and transferred from the pension accumulation funds of the New York State Employees' Retirement System and of the New York State Policemen's and Firemen's System to the reserves held in trust by the State Comptroller, such amounts necessary to pay anticipated group term life insurance claims. Pursuant to section 97.5 the Actuary will investigate the Plan's claim experience as provided by section 11 of the Retirement and Social Security Law and on the basis of such investigation end recommendation of the Actuary, the Comptroller will certify the premium rates computed to be necessary to fund the group term life insurance authorized to be paid by the Plan. After the close of each fiscal year, the Comptroller will determine the premium which the State and the participating employers are required to pay into the reserve funds to discharge the obligations of the Plan for the past fiscal year.
Section 101(a)(1) of the Internal Revenue Code of 1954 contains the general rule that the proceeds of life insurance contracts, if paid by reason of the death of the insured, are excludable from the gross income of the recipient.
We have considered the provisions of the proposed Regulations which will establish the New York State Public Employees Group Life Insurance Plan. If the Plan is implemented in the manner proposed, it is our opinion that the proceeds of the group term life insurance paid by reason of the death of a qualified member of the Plan will be excludable from the gross income of the recipient pursuant to the provisions of section 101(a)(1) of the Code.
N.Y. Comp. Codes R. & Regs. tit. 2, Appendices, app 11