Deferred Compensation in College Football

A popular sports meme says "Football is life. Everything else is just details." Based on recent news, a variation might be "Football is life (insurance). Check out the details."

A Freedom of Information Act request regarding the compensation agreement for University of Michigan football coach Jim Harbaugh revealed the university is adding $14 million to the second-year coach's compensation package with a series of loans to purchase life insurance. This is in addition to Harbaugh's current annual salary of $5 million.

Some details:

  • A $2 million loan was made June 3, 2016, coinciding with the establishment of the life insurance policy. If Harbaugh is still the head coach on December 6th, each year from 2016 through 2021, Michigan extends additional $2 million loans to cover the annual premium payment.
  • As long as the policy remains in-force, Harbaugh is not required to repay the loans. When he dies, some of the insurance proceeds will repay the university, with the rest passed to Harbaugh's beneficiaries.
  • Harbaugh is the owner of the policy, which gives him the right to take withdrawals or loans from the policy.
  • If Harbaugh should die during the period when Michigan is paying for the policy, the agreement guarantees that the coach's family will receive no less than 150 percent of the premium that has been paid, with the net payout growing by $6 million in 2016 and $3 million each successive year.
  • If Harbaugh decides to leave the school or is fired, the university will stop the loans. If the insurance policy is canceled for any reason after that point, Harbaugh must pay back the money Michigan loaned him.

A source at U-M told ESPN that, while it might seem unusual for a football coach, the agreement with Harbaugh "is a commonplace form of deferred compensation in the corporate world." The publicized details support this assertion, and highlight the advantages for both the coach and the university.

The FOIA documents didn't provide specifics regarding the policy, but since Harbaugh is 52, and by all accounts in good health, a $2 million annual premium will fund a substantial life insurance benefit, immediately increasing financial security for his wife and six children. (ESPN's Darren Revell tweeted that "while Michigan hasn't disclosed Harbaugh's life insurance policy, based on premiums, it's worth at least $35 million," while a Detroit Free Press report calculated the insurance benefit to be "at least $20 million.")

Besides securing financial protection for his family, Harbaugh receives several tax advantages. Since the premium payments are considered loans, the coach does not have to report this additional compensation as taxable income. Cash values in the policy can usually be accessed on a tax-favored basis, either as withdrawals or policy loans. Finally, current tax law also allows his heirs to receive the future insurance benefits tax-free.

With the assurance the loans will be repaid, either if the policy is cancelled or when Harbaugh dies, the university has minimal financial risk. It has also given the coach some compelling reasons to stay at Michigan for the duration of his contract. Since Harbaugh has changed coaching jobs four times in the past 10 years, some expressed concern at his hiring that he might again bolt for greener pastures after a few seasons. This type of agreement, sometimes referred to as "golden handcuffs," provides substantial incentive for Harbaugh to fulfill his contract.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 1767 Sentry Parkway West, Suite 200, Blue Bell, PA 19422, 267-468-0822. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Comprehensive Wealth Strategies is not an affiliate or subsidiary of PAS or Guardian. 2016-27738 Exp. 8/18

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2015-6636 Exp 6/17

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