<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=314834185700910&amp;ev=PageView&amp;noscript=1">

New Update: Healthcare Costs Increasing by Over 60% in Some States. Will you be impacted?

Learn More

Tax Planning with Life Insurance For Alcoa Employees

image-table

Healthcare Provider Update: Healthcare Provider for Alcoa Alcoa has partnered with several healthcare plans to provide its employees with benefits, primarily utilizing the services of major health insurance providers. For many employees, Alcoa's health coverage encompasses offerings from companies like Anthem Blue Cross Blue Shield and Aetna, focusing on comprehensive coverage options that include medical, dental, and vision plans. Potential Healthcare Cost Increases for Alcoa in 2026 As we look ahead to 2026, healthcare costs are projected to rise significantly, primarily driven by increases in ACA marketplace premiums. Nationally, insurers are requesting median premium hikes of approximately 20%, with individual states seeing increases as high as 66%. The expiration of enhanced federal premium subsidies adds further pressure, potentially leading to a staggering 75% increase in out-of-pocket costs for many enrollees. For Alcoa employees, these factors will likely mean a reevaluation of healthcare spending and strategic planning to mitigate escalating out-of-pocket expenses in the coming year. Click here to learn more

What Is Tax Planning With Life Insurance?

Having life insurance can help you achieve a variety of objectives, and tax planning in conjunction with life insurance can minimize the tax implications of your life insurance decisions. Depending on the type of insurance coverage you choose, the tax planning tools involving life insurance will vary. In order to make informed insurance tax planning decisions, Alcoa clients must first comprehend topics such as the tax-deferred accumulation of cash value, the taxation of withdrawals, proceeds, loans, and dividends, and the premium deductibility. In addition, your insurance tax planning should include an understanding of the benefits and drawbacks of simple life insurance, modified endowment contracts, personal life insurance trusts, business use of life insurance, and life insurance as part of a charitable giving plan.

What Is The Tax-Deferred Buildup of Cash Value?

Even if the policy terminates due to a mortality claim, the cash value increase in an insurance policy is generally not taxable income as long as the policy remains in force. Therefore, the accumulation (increase) of cash value represents deferred income.

What Are The General Tax Rules For Life Insurance?

A contract cannot be considered a life insurance contract (and thus eligible for favorable tax treatment) for federal income tax purposes unless it is treated as a life insurance contract under applicable state law and meets either the cash value accumulation test or the cash value corridor test.

Depending on the form of distribution (i.e., a lifetime distribution, death proceeds, or dividends), the tax treatment of your life insurance policy will vary. For federal income tax purposes, lifetime distributions (other than loans) from such cash-value life insurance policies are generally treated as first-in, first-out (FIFO) distributions. In other terms, the money you withdraw is initially considered your nontaxable basis or investment in the contract. Only distributions in excess of your basis are considered taxable.

Distributions

We would now like to discuss distribution categories with our Alcoa clients. A lifetime distribution is any payment of the cash value of a life insurance policy made during the insured's lifespan, as opposed to the payment of the proceeds after the insured's death. There are three principal categories of lifetime distributions: loans, partial surrenders, and complete surrenders.

  • The policyholder obtains a loan from the insurance company using the cash surrender value of his or her policy as collateral. Until the debt is repaid, the loan balance reduces both the cash surrender value of the policy and the death benefit. Because they are not considered distributions for tax purposes, policy loans typically do not trigger an immediate income tax liability for the policy owner. As long as your policy remains in force, the loan proceeds are not considered taxable income. However, Alcoa clients should be aware that if their policy lapses or they surrender the policy, they will be required to include the outstanding loan proceeds in their gross income to the extent that the loan proceeds exceed their initial investment in the policy.

Example(s):  Consider a life insurance policy with the following values: cash value of $15,000, owner's basis of $14,000, and unrealized gain of $1,000. If you borrow $15,000 from your life insurance policy, the $1,000 unrealized gain will not be subject to taxation at this time. At the time of your demise, your insurance company will deduct any outstanding loan balance (plus interest) from the death benefit and pay your beneficiary the remainder tax-free. (The date the policy was issued is irrelevant for loans.)

  • In many instances, you can withdraw and retain all or a portion of the cash value accumulation in your policy. This is known as a partial surrender, and it reduces the policy's cash surrender value and mortality benefit. A partial renunciation is generally taxed on a first-in, first-out (FIFO) basis. Consequently, only quantities received in excess of your basis will be taxed.
  • Complete renunciation is the termination of an insurance policy. The insurance company will typically send you a check for the net cash surrender value at this time. The difference between the cash surrender value of the policy (plus any outstanding loans) and your basis in the contract is considered taxable income for tax purposes.

Death Proceeds

The proceeds from a life insurance policy paid upon the insured's demise are generally not included in the recipient's taxable income; they are received tax-free. Amounts payable upon the insured's death are excluded, regardless of whether they represent the return of premiums paid, an increase in the policy's value due to investments, or the funeral benefit feature. It makes no difference whether the life insurance proceeds are received in a single sum or in some other manner. (However, any interest paid in conjunction with the life insurance payout is generally taxable.)

Tip: Additionally, Alcoa clients must be aware of the estate and gift tax implications of life insurance. In general, a policy's proceeds are included in the insured's estate if:

  • The proceeds were payable to or for the benefit of the insured's estate; or the decedent transferred the policy for less than fair consideration (value) within three years of his or her demise; or 
  • the proceeds were payable to or for the benefit of the insured's estate.
  • At the time of death, the insured held all incidents of ownership, such as the right to alter the beneficiary.

The fair market value of your interest in a life insurance policy at the time of the gift may be subject to gift taxes if you give it away.

Dividends

A dividend is the quantity of your premium that is returned to you if your insurance company achieves a lower-than-expected mortality rate among policyholders. If you are a 55-75-year-old or older Alcoa employee, you should be aware that life insurance dividends are typically regarded as a return on investment and are not considered taxable income to the policy owner. Unless they surpass the total cumulative premiums paid on the policy. It makes no difference whether dividends are received in cash, left with the insurance company to prepay premiums or accumulate, or received in some other form. Nonetheless, if you leave these dividends on deposit with your insurance company and they accrue interest, you must include the interest as taxable interest income. Generally speaking, life insurance premiums are not tax deductible.

Featured Video

Articles you may find interesting:

Loading...

What About Modified Endowment Contracts?

The Internal Revenue Code (IRC) defines the modified endowment contract (MEC) as a special category of life insurance contract. MECs are subject to special tax regulations under the IRC. In general, loans and partial surrenders of MECs are subject to immediate taxation if the financial value of the contract exceeds the premiums paid. In addition, withdrawals and loans from a MEC prior to age 5912 may be subject to a 10% tax penalty.

What About Personal Life Insurance Trusts?

Sometimes it makes sense to transfer an existing life insurance policy into a trust or have the trust purchase a new life insurance policy. There are two categories of trusts: irrevocable and revocable. These two categories of trusts are taxed differently.

Irrevocable Life Insurance Trust

The primary advantage of this form of trust is that the proceeds from your life insurance policy will not be included in your estate for estate tax purposes after your death. This type of trust is frequently used if your assets will exceed the applicable exclusion amount at the time of your demise, or if you wish to control the timing of a beneficiary's distribution of funds. Alcoa clients should also bear in mind that if their trust beneficiaries are granted 'Crummey powers,' their lifetime transfers of cash into the trust (to purchase a life insurance policy) may qualify for the annual gift tax exclusion.

Revocable Life Insurance Trust

The assets in a revocable life insurance trust must be included in the decedent's taxable estate. This could have negative estate tax implications. However, this form of trust can be useful if your beneficiaries are minor children and you wish to control the timing of the insurance proceeds' distribution.

Regarding Business Insurance, What Are Some of The Planning Vehicles?

Businesses frequently utilize a variety of insurance policies, and the tax treatment varies based on the form of policy. Life insurance in the form of group insurance, key employee coverage, split dollar, or corporate-owned policies may be utilized as an employee benefit and/or to achieve specific business objectives. Moreover, property, casualty, and liability insurance policies are utilized to protect against natural disasters and litigation. In addition, insurance can be utilized to finance retirement plans and buy-sell agreements. You may be concerned about both the deductibility of premiums and the taxation of proceeds if you are a business proprietor.

In general, no deduction is allowed for premiums potentially paid by a business like Alcoa on any life insurance policy covering the life of any officer or employee of the employer, or of any person financially interested in any trade or business carried on by the employer, when the employer, like Alcoa, is a direct or indirect beneficiary of the policy. Therefore, an organization cannot deduct insurance premiums used to finance buy-sell agreements and retirement plans. Additionally, our Alcoa clients should be aware that the premiums paid by a business for critical employee coverage and split-dollar life policies are typically not tax deductible. Nonetheless, a business can typically deduct the cost of group life insurance it provides to its employees, as well as the cost of property, casualty, and liability insurance.

Despite the absence of a deduction for life insurance premiums, life insurance can be a useful instrument for many businesses. In most cases, life insurance proceeds are tax-free. In addition, the cash value accumulation on a life insurance policy is generally not taxed currently, although in certain circumstances this accumulation could subject the business to the alternative minimum tax (AMT). Typically, withdrawals and advances are treated favorably.

Withdrawals of cash value from a life insurance policy are generally first regarded as taxable distributions of earnings on the contract. Withdrawals in excess of the contract's earnings will be regarded as a nontaxable recovery of the contract's basis. In contrast, loans are not regarded as distributions. Consequently, they are not immediately subject to taxation. In some instances, policy loan interest may be tax deductible.

For business purposes, the deduction for casualty losses is regarded differently than for individual purposes. A casualty is, for tax purposes, a loss of property caused by a fire, storm, shipwreck, or other abrupt catastrophe that causes direct damage. Insofar as the quantity of money or property a business receives as reimbursement for a casualty loss is less than the property's adjusted basis, the business can deduct the entire difference. If the business chooses not to file a claim, no loss deduction will be allowed to the extent that such losses are covered by insurance.

How Can Tax Planning With Life Insurance Help You With Charitable Giving?

You may have a strong desire to support your favored or charities. At the same time, you may be concerned about leaving your family or other loved ones with sufficient assets. Using life insurance as part of your charitable giving strategy may enable you to achieve both of the aforementioned objectives and provide you with tax benefits.

Naming the Charity as Beneficiary

If you designate a charity as the beneficiary of your life insurance policy, the proceeds will not be included in your estate for tax purposes. Your estate will be eligible for a charitable deduction for estate tax purposes, but you will not be eligible for a deduction on your income tax return. This strategy is suitable for our Alcoa clients who wish to retain access to the policy's cash surrender value during their lifetime, but donate the proceeds from the death benefit to charity.

Transferring Policy Ownership to Charity

You may also transfer ownership of your life insurance policy to a charity or pay the premiums on charity-owned life insurance policies. You may be eligible for a limited income tax deduction if you meet the requirements. The gift tax charitable deduction exempts from gift tax an explicit donation of a life insurance policy to a charity.

Gift of Cash Surrender Value

You cannot claim a charitable deduction on your gift tax return if you assign only the cash surrender value of the policy to a charity and retain the right to designate the beneficiary and assign the remainder of the policy.

Tip:  Life insurance can also be used in conjunction with charitable remainder trusts.

What is the difference between a partial surrender and a complete surrender of a life insurance policy in terms of tax implications?

A partial surrender of a life insurance policy refers to the withdrawal of a portion of the policy's cash value accumulation while leaving the policy in force. The amount withdrawn is generally taxed on a first-in, first-out (FIFO) basis, which means that only amounts received in excess of the policyholder's basis (the total amount of premiums paid) are subject to taxation.

In contrast, a complete surrender refers to the termination of the life insurance policy, in which the policyholder receives the net cash surrender value of the policy (cash surrender value minus any outstanding loans). The amount received in excess of the policyholder's basis is considered taxable income for tax purposes.

In summary, a partial surrender only withdraws a portion of the policy's cash value, while leaving the policy in force, and is taxed on a FIFO basis. A complete surrender terminates the policy and results in the policyholder receiving the net cash surrender value, which is taxable on the amount received in excess of the policyholder's basis.

Conclusion

Imagine you are a seasoned traveler, preparing to embark on a new journey to a foreign land. You've done your research and have an itinerary in place, but you're not quite sure what to expect when you arrive. Will the language barrier be a challenge? Will the customs and traditions be unfamiliar? Will you be able to navigate the terrain? Retirement can be a lot like traveling to a new place. It's an exciting adventure, but it can also be daunting and uncertain. You may have a plan in place, but there are still many unknowns. Will your savings be enough to sustain you? How will you adjust to a new routine and lifestyle? Will you be able to navigate the healthcare system? Just like when traveling to a foreign land, it's important to do your research and prepare ahead of time. Seek advice from those who have gone before you and learn from their experiences. Consider working with a financial advisor to help you plan and manage your retirement funds. And remember, just like when traveling, unexpected surprises and challenges may arise, but with careful planning and preparation, you can enjoy a successful and fulfilling retirement journey.

What are the key eligibility requirements for employees to participate in the Pension Plan for Certain Hourly Employees of Alcoa USA Corp, and how do these requirements change if an employee is hired or rehired after April 1, 2022? This question aims to explore the specific criteria that must be met for participation in the plan, providing clarity on both the general eligibility for new employees and any exceptions for those previously employed.

Eligibility Requirements: Employees are automatically eligible for the Pension Plan for Certain Hourly Employees of Alcoa USA Corp if they were hired or rehired before April 1, 2022, have reached age 21, and completed one year of vesting service. Employees hired or rehired on or after April 1, 2022, are not eligible for this pension plan​(Alcoa USA Corp_Pension …).

How is the vesting service calculated in the context of the Alcoa USA Corp pension plan, and what implications does it have for an employee considering retirement? Understanding the nuances of how vesting service is accrued and the minimum time required to become vested can significantly impact an employee's retirement planning.

Vesting Service Calculation: Vesting service determines when an employee becomes eligible for pension benefits. Employees become vested after completing five years of vesting service, which includes both periods of pension service and non-pension service such as absences not counted towards pension service. This is crucial for retirement planning, as it ensures employees are entitled to pension benefits even if they leave the company after becoming vested​(Alcoa USA Corp_Pension …).

What various retirement options are available to employees of Alcoa USA Corp, and how do these options affect the benefits and payout structure for retiring employees? This question addresses the multiple choices employees face when planning their retirement, including the differences between normal retirement, early retirement, and disability retirement benefits.

Retirement Options: The plan offers normal retirement (at age 65 with five years of vesting service), 60/10 retirement (for employees between 60 and 62 with 10 years of vesting service), and 62/10 retirement (for employees between 62 and 65 with 10 years of vesting service). Disability retirement is also available for those permanently incapacitated with 10 years of vesting service​(Alcoa USA Corp_Pension …).

Can you elaborate on the survivor benefits provided under the Alcoa USA Corp pension plan, and what steps need to be taken to ensure that a spouse or partner is eligible for these benefits upon the employee's retirement? This question seeks to examine the protections and financial security afforded to survivors, alongside the required documentation and choices available to employees.

Survivor Benefits: The pension plan provides automatic surviving spouse coverage unless waived by the employee and spouse. Surviving spouse pensions are payable if the employee dies while actively employed and vested in the plan, after retirement, or while receiving a deferred vested pension. The spouse must submit a written application to claim benefits​(Alcoa USA Corp_Pension …)​(Alcoa USA Corp_Pension …).

What are the specific methodologies used to calculate the regular monthly pension for employees retiring under the Alcoa USA Corp pension plan, and how might these calculations vary based on an employee's age and years of service? This question looks at the complex actuarial factors that influence pension benefits, enhancing employees' understanding of how their retirement income is determined.

Pension Calculation: The regular monthly pension is calculated using a formula based on the employee's pension service and a pension factor in effect when pension service ends. For example, if an employee retires at 65 with 10 years of service, the pension factor might be $57 per year of service. The pension is adjusted based on age and service length​(Alcoa USA Corp_Pension …).

In the event of a disability, how does the Alcoa USA Corp pension plan provide support to affected employees, and what are the requirements to qualify for disability retirement benefits? This question emphasizes the importance of understanding disability provisions, ensuring employees are aware of their rights and the circumstances under which they might qualify for benefits.

Disability Retirement: Employees under 62 who are permanently incapacitated with at least 10 years of vesting service qualify for disability retirement. They must be deemed permanently disabled and unable to return to work in a bargaining unit occupation. A medical examination may be required to confirm ongoing eligibility​(Alcoa USA Corp_Pension …).

What steps must Alcoa USA Corp employees take to apply for retirement benefits, and what timelines are involved in the processing and payout of these benefits? This question delves into the procedural aspects of retirement applications, aiming to prepare potential retirees for the necessary actions they must undertake.

Retirement Application Process: Employees must file a retirement application with the plan administrator before their desired retirement date. The application can be filed up to 90 days before retirement, and the process typically includes receiving benefit explanations and payment elections within this timeframe​(Alcoa USA Corp_Pension …).

How does the Pension Benefit Guaranty Corporation (PBGC) influence the pension benefits received by employees of Alcoa USA Corp, particularly in the context of plan terminations or financial challenges? This question explores the security provided by the PBGC, focusing on its role as a backup for employees’ pension benefits.

Pension Benefit Guaranty Corporation (PBGC): The PBGC provides a safety net for pension benefits in the case of plan termination or financial distress. If the pension plan is underfunded, the PBGC ensures employees still receive pension benefits, although certain limitations may apply​(Alcoa USA Corp_Pension …).

What resources and support does Alcoa USA Corp provide to its employees for understanding their pension plan, and how can employees reach out for assistance regarding their retirement options? This question emphasizes the resources available to employees for further education and guidance, ensuring they know where to turn for help.

Resources for Understanding the Plan: Employees can access information about their pension plan and retirement options through the Alight Worklife™ website or by calling the Alcoa benefits helpline. These resources offer guidance on applying for retirement and understanding plan benefits​(Alcoa USA Corp_Pension …).

How can employees of Alcoa USA Corp contact the benefits management team to learn more about their specific pension plan details, and what channels are available for inquiries? Understanding the communication channels can empower employees to seek the information they need, facilitating a smoother transition into retirement.

Contacting Benefits Management: Employees can reach out to the benefits management team through the Alight Worklife™ website or by phone at 1-844-31ALCOA. This service provides assistance with pension-related inquiries and retirement applications​(Alcoa USA Corp_Pension …).

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Alcoa Corporation offers a defined benefit pension plan for certain retirees, known as the Alcoa Retirement Plan. In 2022, Alcoa transferred $1 billion in pension obligations to an annuity, maintaining benefit levels for retirees. Eligibility typically requires a combination of years of service and age. Alcoa also offers a 401(k) plan with a company match of up to 6% of employee contributions. Employees can make traditional and Roth contributions, with immediate vesting for all contributions. [Source: Alcoa Benefits Summary, 2022, p. 12]
Restructuring and Leadership Changes: Alcoa announced a significant restructuring of its Executive Leadership Team effective February 1, 2023, to enhance operational excellence, cost management, and innovation. Key changes include William F. Oplinger becoming EVP and Chief Operations Officer, Molly Beerman being appointed as EVP and Chief Financial Officer, and Renato Bacchi taking on added responsibilities as EVP, Chief Strategy & Innovation Officer. These changes aim to align the company's strategy with its vision to reinvent the aluminum industry and integrate corporate strategy with innovative technologies (Source: Alcoa Corporation). Layoffs and Operational Adjustments: Alcoa took a $6 million charge related to layoffs at its Kwinana alumina refinery in Australia, part of a broader restructuring program. This decision was driven by operational setbacks and permitting issues in Australia. Additionally, the company has reduced the number of planned layoffs at its Warrick Operations from an estimated 600 to about 325. This reduction reflects ongoing adjustments to improve efficiency and align with market conditions (Sources: Mining Weekly, Indianapolis Business Journal).
Alcoa provides stock options and RSUs as part of its equity compensation programs. Stock options allow employees to purchase company stock at a fixed price after a vesting period, while RSUs are awarded with a promise of company shares upon meeting certain conditions. In 2022, Alcoa granted both stock options and RSUs to employees, focusing on performance-based RSUs to drive long-term goals. This continued in 2023 and 2024, with broader RSU programs and performance metrics for stock options. Executives and management receive substantial portions of compensation in stock options and RSUs, promoting long-term commitment and performance. [Source: Alcoa Annual Reports 2022-2024, p. 45]
In 2022, Alcoa enhanced its healthcare benefits with expanded mental health support and telemedicine services. By 2023, the company continued to focus on employee wellness with additional preventive care options and wellness initiatives. In 2024, Alcoa's strategy remained centered on integrating innovative health solutions and maintaining comprehensive healthcare coverage. The company emphasized digital health tools and employee support programs to address evolving needs. Alcoa aimed to ensure robust healthcare benefits while managing costs effectively. Their approach reflects a commitment to improving overall employee well-being and satisfaction.
New call-to-action

Additional Articles

Check Out Articles for Alcoa employees

Loading...

For more information you can reach the plan administrator for Alcoa at 390 park avenue New York, NY 10022-4608; or by calling them at (412) 315-2900.

https://contracts.justia.com/companies/alcoa-corp-5547/contract/224382/ https://corporate.findlaw.com/contracts/compensation/amendment-to-deferred-compensation-plan-alcoa2.html https://cache.hacontent.com/ybr/R516/16557_ybr_ybrfndt/downloads/PriorAlcoaSalariedAFN.pdf - Page 23 https://cache.hacontent.com/ybr/R516/16557_ybr_ybrfndt/downloads/PlanIIC.pdf - Page 15 https://www.cityofalcoa-tn.gov/DocumentCenter/View/1511/2023-Benefits-Guide?bidId= - Page 30 https://cache.hacontent.com/ybr/R515/16557_ybr_ybrfndt/downloads/11AlcoaSavingsPlan.pdf - Page 42 https://s29.q4cdn.com/844074237/files/doc_news/2022/07/20220808_PensionAnnuity-VFinal.pdf - Page 8 https://www.alcoa.com/global/en/pdf/sustainability/policies-benefits.pdf - Page 5 https://www.alcoa.com/global/en/pdf/corporate-governance/2023-proxy.pdf - Page 10 https://www.alcoa.com/global/en/pdf/2022-annual-report.pdf - Page 50 https://www.alcoa.com/global/en/pdf/employee-handbook-2024.pdf - Page 35 https://www.alcoa.com/global/en/pdf/benefits-summary-2023.pdf - Page 18

*Please see disclaimer for more information

Relevant Articles

Check Out Articles for Alcoa employees