What Exactly is a Secular Hospital Annuity?
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Anonymous Physician-Executive
Lake Worth, Florida
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Answer:
A secular annuity is an alternative to a secular trust. One approach that is sometimes used is for the hospital, or healthcare organization, to purchase single-premium deferred annuities to fund executive benefits that accrue during the year. The executive receives ownership of the annuity, and income earned on amounts contributed to secular annuities is postponed until such amounts are distributed.
A hospital employee is taxed on the value of the annuity contract when his rights under the contract are no longer subject to a substantial risk of forfeiture. [IRC § 403(c)] Although the employee is taxed on the amount of premium payments made by the employer, the employer can make supplemental cash payment to cover the tax.
If the rights of an employee become substantially vested, the value of the annuity contract on the date of the change is included in the employee’s gross income.
Thank you for your query.
-LaVerne L. Dotson; JD, CPA
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