Sch A - Indiv annuity contracts, basis of premiums?

[Guest amfam2]

On Sch A there is a question re: basis of premium rates.

We have qualified plans funded w/individual flexible premium annuity contracts. The amounts contributed into these contracts are calculated in accordance w/the formula/allocation outlined in the plan document. The insurance co does not tell the plan the amount to be contributed. Instead the plan directs certain amounts for deposit into these individual contracts.

What information is the IRS looking for in response to this question?

Since this is a qualified retirement plan instead of a welfare benefit plan, would it be appropriate to answer N/A and continue on?

[Cathy from Chicago]

We used to have quite a few plans also using individual annuities as the funding vehicle and, like you, were stumped by the Schedule A query since the premium amount listed had absolutely nothing to do with contributions. I called the insurance company a few times to learn exactly what comprised that number and never got an answer..well, got answers but they were merely runarounds. If I recall correctly, I think sometimes I put down the number and sometimes I did not..the times I did not were when we exchanged the individual contracts to a group annuity and the Schedule A for the group annuity were then huge (as included the transferred amount, or somewhere near that amount). To date, no client has yet been questioned by the DOL on the Schedule A. How's this for a 'forsure' answer!

[JohnCheek]

Schedule A Part II question 5 is for "contracts with allocated funds", meaning the policies are owned by the participants. That sounds like your individual flexible premium annuity contracts, so you can't just answer N/A . I would answer that the premiums are "based on the contribution formula in the plan document." If you can get more specific, (eg, based on x% of compensation, or based on $1.50 per hour worked), that's ok, too.

[Kristina]

Your insurance company is supposed to provide you with information for this question. Again a problem with the insurance companies being required to provide information, but not being penalized if they do not provide it. (We gotta get their lobby.)

I always interpreted this to be the amount paid into the contract by the plan and the basis of the premium as whatever the contract contained to determine the amount paid under the annuity. Since the Sch A has the shortest instructions of all the schedules except the Sch P, I don't think the DOL cares. Yet. They are beginning to make changes to the form and are beginning to pay attention to the information the schedule provides. Expect closer scrutiny in the future.

One thought. Since the insurance company is supposed to provide the Plan with all of the Sch A information and since we all ask for that information, my suggestion is that when the insurance company is not forthcoming with the information, that an attachment is prepared to the Sch A stating that the insurance company failed to respond to requests for information.

[Guest b2kates]

I agree with Kristina's insight. In the past we would send a letter to the agent who was receiving the commission and the Insurance companies regulatory department. In the letter, we would advise that the 5500 was being filed and that do to the insurance companies refusal to provide accurate information, in the event of an IRS penalty, the plan was holding the insurance company responsible.

This put all parties on notice. Never had to invoke the letter however.

[GBurns]

I should point out that the agent is not a responsible party nor a party eligible for service of process etc, so any request should be sent to the company in order to be binding. The agents usually are Independent Contractors or at best Statutory employees. Even if this was a salaried company employee, the agent would still not be eligible for anything that would be binding or for which the company could be held responsible. Remember the contract is with the company not the agent and the agent is not a company officer etc.

[Kristina]

GBurns, I would agree with you about the agent, EXCEPT, that many insurance companies forward the Sch A information to the AGENT and expect the agent to forward it to the Employer.

[Guest b2kates]

GBurns, my notice to the agent was 2 fold. As Kristina stated many insurance companies send the information to the agent.

Also, I am putting the agent on notice that we need his help. If the agent is astute, he will recognize that failure to assist the client obtain the information may jeopardize his relationship.

In the past I have recommended changing agents just for such a lack of service.