The Harbaugh Split Dollar Agreement: What You Need to Know
When it comes to high-profile sports coaches, the contracts they sign are often shrouded in secrecy. However, in the case of Jim Harbaugh, head football coach at the University of Michigan, details of his contract have recently come to light. One interesting aspect of his compensation package is something known as a split dollar agreement.
What is a split dollar agreement?
A split dollar agreement is a type of executive compensation plan in which two parties split the premium payments and death benefit of a life insurance policy. Typically, an employer and employee enter into a split dollar agreement to fund an employee’s life insurance policy as an additional benefit. The employer pays a portion of the premium, and the employee pays the remaining premium, but the death benefit is split between them.
The Harbaugh Split Dollar Agreement
In the case of Jim Harbaugh, his split dollar agreement involves the University of Michigan and a California-based company called Life Insurance Strategies Group (LISG). According to public records, the University of Michigan has agreed to pay premiums of $2 million per year on a life insurance policy worth $10 million. However, this policy is owned by LISG, not the university.
Under the terms of the agreement, LISG will receive the first $2 million of the death benefit upon Harbaugh’s passing, in exchange for paying upfront the cost of the policy’s premiums. The university will receive the remaining $8 million of the death benefit.
Why did Harbaugh enter into this agreement?
The primary reason for entering into a split dollar agreement is to mitigate the tax burden on the employee. In Harbaugh’s case, the University of Michigan is paying for the premiums, which means Harbaugh is not taxed on that portion of his compensation. Additionally, the life insurance policy provides a tax-free death benefit to his family in the event of his passing.
It’s worth noting that split dollar agreements have fallen out of favor in recent years due to changes in tax laws and accounting rules. However, they can still be a useful tool for certain types of executive compensation packages.
In conclusion, the Harbaugh split dollar agreement is an interesting example of how executive compensation can take many forms, and how some of these forms are not always immediately apparent. As always, it’s important to understand what you’re signing up for when it comes to employment contracts, especially when it comes to high-profile positions like college football coaches.