Can Second to Die Insurance be Used Inside a Qualified Pension Plan?

Can Second to Die Insurance be Used Inside a Qualified Pension Plan?

Many authorities seem to believe it should not. In a 1997 bulletin reporting on the American Society of Pension Actuaries Conference that year, the AALU reported that the IRS may question the acceptability of the acquisition by a qualified pension plan of a second-to-die contract—­presumably on the lives of an employee participant and that person’s spouse. The Bureau of National Affairs (BNA), a private tax reporting service has reported that “Employers considering second-to-die life insurance…

Read More

Can Insurance Coverage be Conditioned on the Taking of a Medical Examination?

Can Insurance Coverage be Conditioned on the Taking of a Medical Examination?

Yes. Insurance coverage can be conditioned on taking a medical exam if this does not result in discrimination in favor of highly compensated employees. For employees who do not pass the medical exam, insurance is typically limited to the amount, if any, that can be purchased for them using the amount of premium dollars that would be available if they were insurable. For example, if the plan’s insurance formula provides insurance of one hundred times…

Read More

Can a Qualified Plan Trustee Borrow Against the Cash Value of Life Insurance Policies?

Can a Qualified Plan Trustee Borrow Against the Cash Value of Life Insurance Policies?

Yes, but borrowing by the plan creates unrelated business taxable income from any reinvestment of the loan proceeds. For example, if the loan proceeds are reinvested in certificates of deposit, the plan must pay tax on interest income from those certificates. Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

Read More

Can Universal Life Insurance be Used to Provide Death Benefit Under a Qualified Plan?

Can Universal Life Insurance be Used to Provide Death Benefit Under a Qualified Plan?

Universal life and similar products may be used. However, even though universal life has an investment element like that in a whole life policy, the IRS has taken the view that the incidental limits are applied as in the case of term insurance – that is, the aggregate premiums paid must be less than 25 percent of aggregate plan contributions for the participant. While this is clearly incorrect (since a portion of a universal life…

Read More

Can Life Insurance be Used in a Section 403b Tax Deferred Annuity Plan?

Can Life Insurance be Used in a Section 403b Tax Deferred Annuity Plan?

Life insurance can be provided as an incidental benefit under a tax deferred annuity plan. It is provided on much the same basis as in a qualified profit sharing plan and subject to the same limits. Covered employees will have Table 2001 (formerly P.S. 58) costs to report as taxable income, as in a regular qualified plan. Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

Read More

Removal From a Qualified Plan

Removal From a Qualified Plan

There are several reasons that a planner may consider removing life insurance from a qualified retirement plan. Understanding the possible reasons can help you make wiser policy and financial decisions. These include the following: Fund assets can be invested more profitably in an alternative manner. It is more likely that the assets can be safely excluded from the participant’s estate. A life insurance policy may be distributed from a plan to: (a) the insured (who…

Read More

Transferring Existing Policies Into a Qualified Plan

Transferring Existing Policies Into a Qualified Plan

Life insurance owned by a business or plan participant can (with care) be transferred by contribution or sale into a qualified retirement plan. This will generally make premiums deductible and relieve the corporation or participant from the burden of paying those premiums. Before any such transfer, planners should consider: The insurance needs of the transferor – Perhaps the corporation that needs key employee coverage or the individual whose family needs coverage should not be assigning…

Read More

Tax Implications of Life Insurance in Qualified Plans

Tax Implications of Life Insurance in Qualified Plans

Employer contributions to a qualified plan, including amounts used to purchase life insurance, are generally deductible. The amount of life insurance purchased must fall within incidental limits. The incidental test – A qualified retirement plan must be primarily just that—a plan providing retirement benefits. But it may also provide for the payment of death benefits—through insurance or otherwise—as long as those benefits are incidental. Life insurance can be used to provide an incidental death benefit…

Read More

How to Use Life Insurance in Qualified Plans

How to Use Life Insurance in Qualified Plans

Example. Your client is the sole shareholder and president of a cash-rich, highly profitable closely held corporation that employs ten other individuals. The business has set up a qualified pension and a qualified profit sharing plan. The client is highly rated for insurance purposes and his attorney has suggested he increase his estate liquidity by purchasing at least $1,000,000 of additional life insurance. Although your client has a salary of $400,000 a year from the…

Read More

Disadvantages of Life Insurance in Qualified Plans

Disadvantages of Life Insurance in Qualified Plans

Life insurance can often be purchased under favorable terms and conditions through a qualified pension or profit-sharing plan. The insurance is purchased and owned by the plan, using employer contributions to the plan as a source of funds. Understanding the disadvantages helps to make better financial and policy decisions. The plan participant must be annually taxed on the Reportable Economic Benefit (REB) cost of the net amount at portion of the death benefit. This cost…

Read More
1 2