In recognition of National Agriculture Day celebrated March 21, we want to acknowledge local farmers and raise awareness of several ever-increasing risks facing many of them in central and southeast Missouri. Traditional insurance often does not cover some of the farming industry's most significant liabilities, which include business interruption to farming operations, environmental risks that impact crops, supply chain interruptions, and political perils – to name a few. These exposures keep farmers up at night; these worries are real.
Unfortunately, unless the result of a direct loss is specified in the insurance policy, for example, property damage caused by a fire or storm, most of these risks are not covered by traditional insurance. Indirect losses incurred from the pandemic are a prime example of claims excluded by traditional insurance but can be devastating and even wipe out agricultural operations that have been the livelihood of families for generations. Fortunately, farmers can self-insure themselves against these types of losses with tax-efficient funds through a risk mitigation strategy created by congress nearly 40 years ago called an 831(b) Plan.
The 831(b) tax code section allows individuals and small businesses to set aside funds for unforeseen or catastrophic events. An 831(b) Plan provides a tax deferral benefit for self-insured risks, much like the way in which a 401k plan allows for tax deferral on retirement savings.
As an 831(b) Plan Administrator, we witnessed first-hand the devastating effects business interruptions and supply chain restraints had on not only farmers but businesses across the nation in 2020. Since then, our policies for business interruption and supply chain coverage for small to mid-size farming operations and other businesses have increased by 147% and 163%, respectively. The need is evident for 831(b) plans to fill the gaps created by traditional insurance policies for small to mid-size businesses to remain solvent through uncertain times.
The Internal Revenue Service (IRS) has issued little guidance concerning regulations for such plans. This ambiguity unnecessarily puts farmers at risk when planning for the unexpected. An 831(b) Plan can be the lifeline farmers need to maintain cash flow and weather the storm when traditional insurance does not do the job.
The House Ways and Means Committee, led by Congressman Jason Smith (R-Missouri), has the authority to hold the IRS accountable to provide oversight and safe harbor rulings concerning these plans, which can benefit the more than 2 million farmers nationwide. Ninety-nine percent of businesses in this country are small to mid-size. Another disaster like the one we saw in 2020 could lead to even more serious economic ramifications if businesses rely again on a government PPP-type bailout.
The 831(b) Plans we administer are designed to supplement traditional insurance, filling the gaps and enabling small businesses to be self-reliant when unexpected financial hardships strike. As a champion of farmers and small businesses, Congressman Smith can help us by urging the IRS to establish guidelines for the 831(b) Tax Code so that farmers feel comfortable participating in it, without fear of scrutiny from the IRS.
We must protect our farmers and small businesses as they are the backbone of our nation’s economy, and they need our support now more than ever. So, on this National Agriculture Day, we call on Congressman Smith to help us in managing the many risks our country's farmers face and ensure they can continue providing us with the food we enjoy.
Van Carlson is the Founder & CEO at SRA and has over twenty-five years of experience within the risk management industry. Van began his career with Farmers Insurance Group as an agent. Van’s primary goal is to continue the upward growth of SRA and continue to develop new products to bring to market.
