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Characterization of litigation proceeds as plan assets


Guest hb95
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May litigation proceeds relating to a life insurance contract ever be treated as plan assets if the insurance contract was previously held in a qualified plan and subsequently rolled over to a different retirement vehicle?

Thank you.

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1. Need to know more about the "litigation proceeds." For example, what was/were the claim/claims giving rise to the proceeds? Is it a case where at first the insurance company denied coverage when the insured died and then settled after being sued? If so, it seems obvious that the claim/claims and the ultimate proceeds would "follow" the life insurance policy when it was moved out of the plan.

2. Please tell us what type of "retirement vehicle" the policy could have been moved to other than another qualified plan?

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Have such "proceeds" have already been awarded by the court? What is the prospect for the amount changing due to appeal? What does your auditor say?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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1. Need to know more about the "litigation proceeds." For example, what was/were the claim/claims giving rise to the proceeds? Is it a case where at first the insurance company denied coverage when the insured died and then settled after being sued? If so, it seems obvious that the claim/claims and the ultimate proceeds would "follow" the life insurance policy when it was moved out of the plan.

2. Please tell us what type of "retirement vehicle" the policy could have been moved to other than another qualified plan?

1. The insurance company settled after a lawsuit alleging the insurance company's misrepresentation and failure to disclose material information in marketing and selling certain insurance policies for use in funding specific arrangements the IRS later deemed abusive tax shelters.

2. The policy was actually converted to an annuity and then rolled over to an IRA.

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Have such "proceeds" have already been awarded by the court? What is the prospect for the amount changing due to appeal? What does your auditor say?

The case settled, but the proceeds have not yet been distributed.

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1. Need to know more about the "litigation proceeds." For example, what was/were the claim/claims giving rise to the proceeds? Is it a case where at first the insurance company denied coverage when the insured died and then settled after being sued? If so, it seems obvious that the claim/claims and the ultimate proceeds would "follow" the life insurance policy when it was moved out of the plan.

2. Please tell us what type of "retirement vehicle" the policy could have been moved to other than another qualified plan?

1. The insurance company settled after a lawsuit alleging the insurance company's misrepresentation and failure to disclose material information in marketing and selling certain insurance policies for use in funding specific arrangements the IRS later deemed abusive tax shelters.

2. The policy was actually converted to an annuity and then rolled over to an IRA.

What claim is the settlement supposed to satisfy? A payment to make the policyholder/plan whole for misrepresentations sounds like payment for damages (tort) for selling an investment product that was not suitable, not restitution of assets that were misappropriated by the insurance co. Does the settlement agreement make references to the proceeds constituting a return of assets that were invested in an imprudent investment?

mjb

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