Life insurance policies taken out by and payable to companies on their employees, directors, officers, owners, and debtors are commonly known as corporate-owned life insurance (COLI) policies. (COLI is also known as company-owned life insurance.) Such policies enjoy the same two basic preferences under the tax laws as other life insurance. First, death benefits paid under life insurance policies are not taxable income to the beneficiaries of the policies. Second, increases in the value of the policies over and above the premiums paid that result from investment earnings on such premiums are not taxable unless the policy is surrendered prior to the death of the insured. This second preference is generally referred to as the "tax-free inside buildup" of life insurance. Therefore, the corporation enjoys either tax-deferred growth or tax-free growth of funds invested in COLI plans. This tax treatment of COLI policies explains a large portion of their usage, because it is certainly possible for a corporation to make a similar investment without the complication of a life insurance policy. Without the life insurance policy, however, such investments would be subject to regular taxation. In addition, under certain circumstances, companies have deducted the interest expense for loans from COLI policies from their taxes. Some companies have then used the loan proceeds to pay for the premiums of the life insurance policies, further enhancing the advantages of COLI-related transactions. Congress has increasingly restricted the instances in which this interest is allowed to be tax deductible. The payment of premiums by the company, on the other hand, is not tax deductible. Although the federal tax preferences for life insurance have been passed by Congress, the ability of firms, as well as individuals, to purchase such insurance in the first place is regulated by the states. Because of this, the state and federal governments effectively have a joint role in the regulation of life insurance policies for tax purposes. The most basic requirement that states have instituted for purchasers of life insurance is that a policyholder must be able to demonstrate "an insurable interest" in the insured. Companies have typically justified an insurable interest in employees, officers, directors, and owners based on the potential financial costs associated with the death of those individuals. Some states require the insurable interest to be established only at the time the insurance is purchased; therefore, companies may continue to hold life insurance policies and enjoy the tax advantages of COLI policies covering insureds no longer employed by the company. COLI can be acquired on an individual or group basis, and the employer generally becomes the applicant, owner, premium payer, and beneficiary of the policy. Because the corporation pays all of the premiums and receives all of the benefits, neither the individuals actually insured nor their heirs receive any of the death benefits. Thus, COLI is not an employee benefit and should not be confused with group life insurance benefits that employers provide to their employees. COLI can take many forms. Traditionally, narrow-based programs known as "key man insurance" have been used by corporations to insure the lives of their top executives and to protect themselves against the death of those key employees who are especially difficult or costly to replace. Other related uses of narrow-based COLI programs have included the financing of individual stock redemption agreements or deferred compensation plans for key employees. According to news reports, some companies have used broad-based COLI programs that covered not only key officials, but all or most of a corporation's employees. This application of the principles of COLI apparently developed to generate a funding source for other corporate purposes (e.g., executive benefits, supplemental pensions, and broader employment-related benefits, such as retiree medical plans). The use of COLI to fund retiree medical benefits is largely attributable to the promulgation of Statement 106 by the Financial Accounting Standards Board (FASB 106). Under FASB 106, post-retirement benefits, including retiree health benefits, are required to be recognized as a cost as they are earned over the working lifetime of the employee, rather than as they are paid after retirement. If these accrued benefits are not funded in some manner, they create a growing balance sheet liability. The COLI benefits accruing to a corporation from the death payouts on employees and the tax-free inside buildup in the value of the policies can be used to create a balance sheet asset that the corporation can use to offset the liability and finance the cost of retiree benefits. Advocates of using COLI to finance such post-retirement benefits assert that without such funding, many companies would discontinue their voluntary retirement health benefits. On the other hand, critics claim that companies should not profit from the deaths of rank-and-file employees, sometimes referring to COLI as "janitor's insurance" or "dead peasant insurance," and note that although companies claim to be using COLI to finance employee benefits, there is no regulation of this use as there is for benefit plans under the Employee Retirement Income Security Act (ERISA), which also provides for tax-preferred investments to fund employee benefits. When banks purchase COLI policies, they are sometimes referred to as bank-owned life insurance (BOLI) policies. In 1996, the Office of the Comptroller of the Currency (OCC) issued general guidelines for national banks to ensure that bank purchases of BOLI are "consistent with safe and sound banking practices." The OCC determined that a purchase of life insurance is incidental to banking and therefore legally permissible, if it is convenient or useful in connection with the conduct of the bank's business. The OCC guidelines specifically state that national banks may use COLI as a financing or cost recovery vehicle for pre- and post-retirement employee benefits, that the value of COLI is a corporate asset even after the employer/employee relationship is terminated, and that employees have no interest in the insurance other than their general claim against corporate assets arising from the corporation's obligation to provide the stated benefits. Although COLI is not particularly well known, it has drawn attention both in the print media and even in film. In April 2002, the Wall Street Journal initiated a three-part series subtitled "Janitor's Insurance—Profiting When Employees Die" on COLI plans. The articles were critical of COLI and named major corporations that reportedly have put millions of dollars into COLI policies insuring thousands of employees. Following the Wall Street Journal series, other major newspapers, including the Washington Post , carried articles critical of COLI/BOLI. The Wall Street Journal focused more recently on COLI, reporting in May 2009 on the most recent filings by banks on their usage of COLI. In 2008, COLI reported by banks totaled $122.8 billion. COLI also drew popular notice as it was criticized in a Michael Moore film, Capitalism: A Love Story . H.R. 130 was introduced by Representative Gene Green on January 5, 2011. This bill would require employee notice of COLI, including the benefit amount and the beneficiary of the policy and their violation would constitute an unfair trade practice. Enforcement of these requirements would fall to the Federal Trade Commission. This proposal is similar to the limitations included in the Pension Protection Act of 2006 (discussed below), but these requirements would be enforced through the Federal Trade Commission Act, rather than the Internal Revenue Code. Capping legislative activity from the 109 th Congress, the Pension Protection Act of 2006 included language adding requirements to the tax code in order for a COLI policy to enjoy the typical tax advantages of life insurance. These requirements were that these policies must be on directors or highly compensated individuals and that insured employees must be notified and provide written consent at the time the life insurance contract is issued. The term "highly compensated" employee includes any employee receiving a salary in the top 35% of the company. Companies were also required to file a yearly return with the Secretary of the Treasury detailing their usage of COLI policies. Note, however, that the information from these returns are confidential as is most tax information. The interest in COLI over the past few years is only the most recent congressional focus on the issue. Since 1986, the tax benefits of COLI relating to the tax deductibility of interest on COLI-related loans have been limited by legislation. In 1986, Congress capped deductible interest for indebtedness exceeding $50,000 per individual contract. Only interest on loans related to policies purchased after June 20, 1986, was specifically covered. It has been suggested that companies responded to this limitation by expanding the coverage of life insurance from upper management to rank and file employees, thus generating more COLI-related loans, albeit at the capped amount. In 1996, Congress approved legislation that entirely eliminated (with a phase-out rule) the interest deduction for loans on policies covering employees or officers, except for key persons. Further, Congress capped deductible interest rates on key persons and pre-1986 contracts based on an average corporate bond rate. At least one business reacted by proposing to expand life insurance contract coverage and related tax-advantaged loans to policies covering customers, specifically mortgagors. Congress addressed this behavioral response in 1997 by further restricting interest expense deductions for life insurance loans. The 1997 change required that interest deductions be reduced through a pro rata calculation based on the ratio of the cash value of a corporation's life insurance policies to a corporation's total assets. However, policies for employees, directors, officers, and specified owners were explicitly excluded from this calculation, suggesting the change was intended to address specific policies, such as those covering borrowers. This mechanical approach has the effect of disallowing the interest deduction for cases such as lender policies covering mortgagors. In addition to the increased restrictions Congress imposed on COLI interest deductions, the Internal Revenue Service (IRS) successfully litigated several cases of what it considered to be abuse. Also, the IRS offered a settlement initiative to encourage the disclosure of questionable transactions and induce payment of a portion of the presumed tax liability.