412(e) conversion

[Draper55]

(1) how does one convert a 412(e) plan to a non fully insured plan? Can it be accomplished simply by not making premium payments?  (2) if a fully insured plan is frozen for a year can it be resumed or does it lose the level premium requirement by doing so? (3) what are the options for getting the life insurance out of the plan?

[ErnieG]

The Fully Insured Plan would need to be amended.  The prior balances need to be protected, usually with the purchase of single premium annuities.  You need to look to the plan document regarding the life insurance, generally they must be surrendered, however the participant may have a right of first refusal to purchase (PTE 92-6) or have them distributed (paying tax and possible penalty).  The purchase or distribution must be valued at the contracts fair market value (IRS has a safe harbor that may be used Rev. Proc. 2005-25 or the policy may be independently valued by a qualified appraiser).  Fully Insured Plans are Defined Benefit Plans and must be funded (level) to NRA.

[Draper55]

Ernie thanks for your response. If a successor plan without insurance were started how would the accrued benefit of the fully insured plan be determined..the actuarial equivalent of the cash surrender value(on what basis) or some other method?

[ErnieG]

The accrued benefit in a fully insured plan is determined by the cash value of the underlying guaranteed contracts.

[Draper55]

In terms of nondiscrimination testing going forward, how do I get from the cash value distributed to a prior accrued benefit ? I assume for 415 that I would have to use the applicable q and 5.5% to translate the cash value to an accrue d benefit, i.e., apply a MASD approach...