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So, the company contributions that were directed toward each owner where used to pay the insurance premium for the respective owner? This is the equivalent of an investment of a portion of that owner's account balance in an insurance policy. Even in a balance forward system, the top-down allocation of earnings would apply only to the owner's balance that doesn't include the insurance policy (as the insurance policy would be a separate investment of the account balance for that particular owner). I'm trying to keep my semantics in check while trying to explain the concept. Good Luck!

The response might depend on your relationship to the participant. If you are a plan representative, or a record-keeper, or a trustee, it may be appropriate to offer no response, other than "see your tax advisor".

The questioner should bookmark this webpage: https://www.dol.gov/ebsa/5500main.html

I'm shocked, shocked I say, that someone from the IRS would give incorrect information! We could probably all fill volumes about some of these trials and tribulations...

I agree. With the caveat that when life insurance is in a plan, you never know...

Just a reiteration of the distinction you have already made: For the terminated at age 55 provision, it is "In the year you turn age 55" or any subsequent year. So, if you terminate employment January 1, 2016 and turn age 55 on December 31, 2016; any distribution during 2016 from the qualified plan will be exempt from the 10% early withdrawal penalty. The age 59-1/2 provision, it must be 6 months after your 59th birthday; there is no "in the year of" provision. You've already made that distinction, but I thought it was worth reiterating or other readers. Good Luck!

Yes.

How were the premiums funded; from the entire plan or from the principals who were the insureds account balances? Typically, each insureds own account balance is used to fund the premiums for their individual policies. Therefore, any cash surrender to go directly back to them; as it presents the equivalent of an investment of dollars in their account. Good Luck!

one issue sometimes missed is vesting. you never prorate hours, always use a 12 month period. so some hours from one year get counted a second time Labor Reg 2530.203-2© ... For example, a plan which has been using a calendar year vesting computation period is amended to provide for a July 1-June 30 vesting computation period starting in 1977. Employees who complete more than 1,000 hours of service in both of the 12-month periods extending from January 1, 1977 to December 31, 1977 and from July 1, 1977 to June 30, 1978 are advanced two years on the plan's vesting schedule. The plan is deemed to meet the requirements of this subparagraph.

I would be curious to see the argument for why some people think they should not be keys for 2015.

Make up contributions (failure to withhold) could be a QNEC, but earnings are earnings.