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"They would like to terminate the policies..." Can we all agree that if it is a pension plan, then the plan administrator of the plan,acting in a fiduciary capacity, gets to make all such decisions, and the wishes of the individual participants only carry weight to the extent that those wishes are supported by the provisions of the plan? The participants do not own their accounts or the assets backing their benefits, so the participants don't get to say "Just give me my money!" unless they can point to a plan provision saying that they can do that. If the participants have the authority to direct the investment of their accounts, they can probably have the policies cashed in and those proceeds included in their account balances.

Unicorns are far, far more common than "easy to read" fee disclosures....

One more thing that you should note when there is insurance in the plan. There are two qualification rules that are affected when you have insurance. First, having the insurance cannot be discriminatory. So, i would be concerned if the insurance was only available to HCEs (which may be the case if no new insurance has been offered to anyone since 1904. :) Second, the amount paid for the insurance must be incidental. If there have been years with no profit sharing contribution (assuming a profit sharing plan), it is possible that the payment of insurance premiums ceased to be incidental. (n general, "incidental" for term policies means that the total premiums paid must be less than 25% of the total contribution and forfeiture allocations for all years; if it's a whole life policy, the percentage is 50%. If it's universal life, it's basically the term rules, applied to the term portion of the policy.) So, my only point here is that this is a Pandora's Box -- be sure to open it all the way or warn the client of ramifications so that it does not bite you in the proverbials. Of course, none of this should be interpreted to be legal advice ... Have a nice weekend, everyone.

I wouldn't suggest the participant has any more information than the alternate payee - it's what you ask that determines the "upper hand." DROs are complex. Plans are complex. Good attorneys get the right information before drafting or agreeing to a the terms of a DRO.

Jumping in late here, but I'll ditto that. I don't buy into the "debt" to the participant/estate theory; it's just a mistake and any money in the plan at this point is payable to the benefiary.

Forget for a moment that these are life insurance policies and think of them as self-directed investments. Participants (in theory) elected to purchase these investments with some of their other account money. They can choose to move the current value back to the other investments, or they can leave it where it is. Assuming the policies were set up properly in the first place (a fairly big assumption, given what all of us have seen screwed up by life insurance agents), then they are owned by the plan, and surrendering the policy(ies) just means moving money from one part of the plan to another. You're not moving funds "to" the plan, you are moving funds "within" the plan. Hence no taxable event. In a perfect world, or just a reasonable one, the insurance policies would be tracked as "PS" or whatever kind of money they were originally bought with. Unfortunately, some administrators choose to show premiums as "expenses" of the plan, which then leads them to ignore the values of the policies for asset reporting purposes. Possibly the reason for some of the confusion about moving "to" or "within" the plan.

Not a lawyer, but... The owner of the sponsor is not acting as the sponsor. The owner of the sponsor is a plan participant with respect to those assets held by the plan for the benefit of the owner of the sponsor. To the extent that the owner of the sponsor is making decisions about the disposition of plan assets, the owner of the sponsor is acting as the plan administrator and is subject to fiduciary standards. This is not at all the same as the owner of the sponsor having a personal investment account that includes an insurance policy. In this instance, the insurance policy is owned by the plan, and it is only through operation of the plan, per its provisions, that the value of the policy can be paid to the owner of the sponsor.

3) the participant can die.

one of Sherlock Holmes mysteries, so here is "Dr" Watson's explanation, "The MEP headed-league", as found on Benefits Link Q and A https://benefitslink.com/cgi-bin/qa.cgi?db=qa_who_is_employer&n=341 Moving Out of a Multiple Employer 401(k) Plan (Posted April 13, 2017) Question 341: An employer wants to move out of the 401(k) plan operated by their current PEO and establish a 401(k) plan with more flexibility in design. The plan with the PEO (which is co-sponsored by the employer) is not a safe harbor plan. Would the new plan be a 'successor' plan? Could it be a safe harbor plan? Answer: This is one of the many situations where the pension community can fondly wish that Treas. Reg. 1.401(k)-5, entitled "Special Rules For Mergers, Acquisitions And Similar Events," said something other than "[Reserved]." After all, it's been 13 years since the Treasury issued the final 401(k) regulations. Isn't that reservation a little stale by now? We are left to do the best we can with "unspecial" rules that do not consider the peculiarities of such transactions. Let's examine this issue a piece at a time: Is the new plan a different plan than the PEO plan, or merely a continuation? It is truly a new plan. There is a new "pot of money" under a new document and a new trust, filing a separate 5500 (which should have the "first year" box checked). Was the PEO plan maintained by the employer? Yes. The employer may not have had the power to do anything under the plan other than make contributions and terminate participate, but it signed on as a sponsor, and that is enough to maintain a plan. Is the new plan a successor plan under the 401(k) plan rules? Yes. Reg. 1.401(k)-2(c)(2)(iii) defines a plan as a successor plan if "50% or more of the eligible employees for the first plan year were eligible employees under a qualified cash or deferred arrangement maintained by the employer in the prior year." That is the definition that applies for the safe harbor rules. See Reg. 1.401(k)-3(e)(2). Can the employer set up a safe harbor 401(k) plan immediately upon withdrawal? Yes, but that plan will need to have a 12-month plan year. The rule that allows a short initial plan year does not apply because the plan is a successor plan. Suppose the employer is willing to have an initial 12-month plan year, starting May 1. Can the employer convert to a calendar year plan thereafter, perhaps by having a short year from May 1, 2018 to December 31, 2018? Yes. Reg. 1.401(k)-3(e)(3) specifically allows the plan to retain safe harbor status in this situation, although both the prior year, ending April 30, 2018, and the following year, beginning January 1, 2019, would need to be safe harbor. Would the employer be able to carry over the deferral elections from the prior plan as an automatic enrollment device? It would not qualify as an ACA under ERISA or a EACA or a QACA under the Code because the deferrals would not be "uniform." Otherwise, I cannot see anything that would prevent it, assuming the plan document is sufficiently flexible to permit it. Would the employer be able to give the safe harbor notice now, less than thirty days before a May 1 effective date? Yes. Because this is a new plan, the notice is "deemed reasonable" if given any time before the May 1 entry date. Reg. 1.401(k)-3(d)(ii). The fact that this is a successor plan does not affect this rule. Chapter 22 of my book, Who's the Employer, defines plans. Chapter 18 discusses multiple employer plans. For information about the upcoming 7th edition