ErnieG

I agree with Bill, it absolutely makes no economic sense to purchase life insurance with after-tax dollars in a Roth 401(k). Your paying premiums with after tax dollars same as you would outside of the Plan. Any cash value increases (dividends or interest) grow tax deferred with potential income-tax free distributions (for Non Modified Endowment contracts) via return of basis and loans. It is also my understanding that the taxable term cost to the participant (the Table 2001 or the old PS 58 costs) are applied to the participants cost based on the employer's payment of premiums, the case of a qualified plan the plan's payment of premiums, no tax or economic benefit on the inside buildup. Considering the participant is paying tax on the entire premium in a Roth, I don't understand how there could be a taxable term cost. I cannot find a specific site on this and I'm only going on the affect of a pre-tax taxable term cost.

CB agreed, thank you.

duckthing, thank you. I understand the statutory service requirement. What I am questioning is, does the reference to "elective deferrals" apply to Roth contributions as outlined in the SECURE Act §112?

Would appreciate opinions/comments on this. Going through §112 of the SECURE Act referencing elective deferrals for long-term part-time employees. Section 112 (a)(1) references §401(k)(2)(D) which is the Code Section that allows for a cash or deferred arrangement. Section 112 does not reference §402A relating to Roth contributions. Therefore a long-term part-time employee can make elective deferrals but not Roth contributions. Is this an oversight? Or am I missing something? Thank you.

In a Defined Benefit Plan that permits a survivor benefit funded with life insurance the benefits, rights and features must be available on a nondiscriminatory basis.

Thank you.

Ray: Some life insurance carriers have niches in this market for these plans and have proved their compliance with the spirit and intent of the Rules and Regulations. Considering your request and without full discovery of your situation these plans are for those is are risk averse and looking for guarantees. I know of three life insurance companies that offer administrative services and specific products designed for this market (Security Mutual, Guardian, and Lafayette Life).

Does your employer offer an Employee Assistance Program? A solution may be to go through the EAP, which is confidential.

Agree with Luke. Good reference point is KENNEDY v. PLAN ADMINISTRATOR FOR DuPONT SAV. AND INVESTMENT PLAN, where The Supreme Court relied on the Plan Documents Rule. Essentially, the notion that ERISA is governed by the terms of its plan and there is no requirement that an administrator look to external documents or other external evidence in order to carry out his ERISA obligations.

One more point, no commission splits if the decision is made to include partially funded with life insurance.

Security Administrators, Inc. $1,250 plus $50 per participant. Great plans if done properly.

They are covered by ERISA, however not by Title I of ERISA. Title I deals primarily with the rights of participants under a plan and includes requirements for: reporting and disclosure, fiduciary responsibility, vesting, minimum standards for participation, and minimum funding standards. [Reg. 2510.3-3(b)]

Agreed with justanotheradmin the contracts may have been surrendered to the Profit Sharing Plan. However, a good place to start on the status of the policies and carrier would be the NAIC's website: https://www.naic.org/documents/consumer_alert_locate_lost_life_insurance_benefit.htm

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

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.

I.R.C. § 404(a)(6) Time When Contributions Deemed Made — For purposes of paragraphs (1), (2), and (3), a taxpayer shall be deemed to have made a payment on the last day of the preceding taxable year if the payment is on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (including extensions thereof).

chc93, correct, no contributions where made in 2015 and 2016. A contribution was made in 2017 in an amount that provided a funding status of slightly over 100%. CuseFan, that was my initial reaction, irregardles of how much they contributed in 2017. I am trying to obtain the Actuary's rationale on why he/she felt no contributions needed to be made in 2015 and 2016. Thank you all.

Thank you and yes they made their first contribution in 2017. My concern was the fact that no contributions were made in the first two years of the plan and they started making contributions in the third year. Wouldn't this be a violation of the minimum funding standards beginning in year one and also in year two? Have you seen this methodology in the initial funding of cash balance plans, with a three year cliff?

I have not seen this before and would appreciate your insight and comment. A cash balance plan was established in 2015 with the plan year beginning 01/01/2015. In reviewing the Annual Funding Notice the company has not made a contribution to the Plan in the first two years of its implementation, 2015. Their Annual Funding Notice is confirming that no contributions have been made in 2015 and 2016. Their Plan Adoption Agreement clearly outlines the benefit that should have been funded for: [ X ] Group One:. An amount equal to: [ X ] $ 190,000 for each Determination Period. .[ X ] Group Two: An amount equal to: [ X ] $ 93,000 for each Determination Period. [ X ] Group Three: All Other Participants. An amount equal to: [ X ]2.50 percent of Compensation during the Determination Period. A contribution has been made for the 2017 plan year and the funded status is over 100% in 2017. My understanding is, in general the “minimum funding standards” requirement under the Code require sufficient assets in the Plan to meet the current liabilities. For example in 2015 and 2016 there is a Plan liability to provide the projected retirement benefit however no asset, contribution, has been deposited. My only thought is the company is not funding the Plan based on the vesting schedule which is a 3-year cliff. Therefore for years one and two (2015 and 2016) there is no benefit calculated because there are no benefits paid in the event a participant leaves service, no vesting. In year three 2017 they become 100% vested and are due the accrued benefit from the time they became eligible. I believe this approach is not correct. The “minimum funding standards” ensure that sufficient money will be available to pay promised retirement benefits to employee when they retire, no mention of when the vest. I have not seen this interpretation before and cannot locate a cite to justify its conclusion. Can this be possible? Do you agree with funding based on the vesting schedule or funding based on the retirement benefit once eligible? Your thoughts and comments, as always are appreciated.

Has the Doctor owner considered a non qualified approach in this situation for this non owner Dr.? That may be more attractive with more flexibility.

Grady as Lou S stated the Cash Surrender Value may or may not be the actual Fair Market Value of the contract. The carrier should value the contract's FMV, this will usually be based on the IRS' safe harbor calculations as Lou S outlined in the Rev. Rul.

Assuming the $110,000 is the Fair Market Value. The policy should be properly valued prior to the purchase.

Great replies, the answer is quite simple. Regarding your question and the reference to a distribution at 59 1/2 (per the Plan Document), my assumption is we are referring to a Profit Sharing Plan. The Trustees, have control over the investments in the Plan, life insurance being such an investment. The Plan Trustee, in my experience and to assure they are acting within their fiduciary capacity, would usually offer the participant the right of first refusal, to purchase the policy following PTE 92-6. Should the participants decline the purchase, and the fiduciary documents such, the contracts would be surrendered. As the Plan is the owner, the cash surrender value would be deposited to the Plan, and the pursuant to the terms and conditions of the Plan be either accessible or not to the participants.