SSRRS Posted July 14, 2020 Share Posted July 14, 2020 Hi, May everyone be well and safe. Based on the incidental death benefit rules, a life insurance policy cannot be held beyond retirement of the employee. If an employee is still active, yet is beyond 62 and is taking in service distributions, must the policy on this employee be distributed/converted to cash value etc. as well? In addition is there a difference if the one taking the in service distributions is an owner as opposed to an employee? Thank you for any insights on this matter. Link to comment Share on other sites More sharing options...
ErnieG Posted July 14, 2020 Share Posted July 14, 2020 Rev. Rul. 54-51 requires that for the life insurance to be "incidental", the policy must be converted to a retirement income or distributed to the participant no later than the normal retirement date under the plan. Rev. Rul. 57-213 clarified that the life insurance policy may continue beyond the normal retirement age, provided the participant does not elect to retire. I doesn't matter if they are taking in-service distributions or RMDs provided they continue to work. ugueth and Luke Bailey 2 Link to comment Share on other sites More sharing options...
SSRRS Posted July 15, 2020 Author Share Posted July 15, 2020 On 7/14/2020 at 5:06 PM, ErnieG said: Rev. Rul. 54-51 requires that for the life insurance to be "incidental", the policy must be converted to a retirement income or distributed to the participant no later than the normal retirement date under the plan. Rev. Rul. 57-213 clarified that the life insurance policy may continue beyond the normal retirement age, provided the participant does not elect to retire. I doesn't matter if they are taking in-service distributions or RMDs provided they continue to work. ErnieG, than you very much! Your knowledge and clear way of writing, is much appreciated, Link to comment Share on other sites More sharing options...
Retired, but still reading Posted July 16, 2020 Share Posted July 16, 2020 However sooner or later, you'll have to deal with the policy. DOL has a PTE https://www.federalregister.gov/documents/2002/09/03/02-22376/amendment-to-prohibited-transaction-exemption-92-6-pte-92-6-involving-the-transfer-of-individual that permits the sale of the contract by the plan to the participant, a relative, the employer or a trust. This may be desirable if there's a need for coverage beyond NRA. If it's a policy with cash value, the plan could take a maximum policy loan prior to the transfer which would reduce the cost to the buyer. Link to comment Share on other sites More sharing options...
FPGuy Posted July 16, 2020 Share Posted July 16, 2020 Also, beware of transfer-for-value issues where buyer is not the insured. One suggestion in latter regard is for buyer to be a grantor (relative to insured) trust. This may also circumvent the three year rule estate inclusion rule where insured as buyer then wants to transfer the policy out of his estate to a non-spouse. Link to comment Share on other sites More sharing options...
SSRRS Posted July 17, 2020 Author Share Posted July 17, 2020 Thank you very much, Retired, but still reading and FPGuy. Very helpful and of course very impressive. Link to comment Share on other sites More sharing options...
AndyH Posted July 17, 2020 Share Posted July 17, 2020 If the participant is an HCE and it is being offered to him, other participants would have to be treated similarly. Link to comment Share on other sites More sharing options...
SSRRS Posted July 21, 2020 Author Share Posted July 21, 2020 On 7/17/2020 at 4:38 PM, AndyH said: If the participant is an HCE and it is being offered to him, other participants would have to be treated similarly. Thank you AndyH. Link to comment Share on other sites More sharing options...
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