insurance value in retirement plan

[Guest Elizabeth Gaskins]

we have a plan that allows insurance to be purchased. 1 person in this profit sharing plan took advantage of this a few years ago. 2 years ago the insurance company where the policy was purchased demutualized and the policyholder received shares of the insurance company. should these shares now be included in the value of the participants assets (in addition to the value of the policy)? or does he own them individually?

any comments are appreciated. thanks.

[mbozek]

The shares of stock in demutualizatoin are awarded to the owner of the policy and if the policy is held by an ERISA plan the shares must be used for the exclusive benefit of the participants. In a DC plan the LI is usually purchased on the life of a participant and the premiums are paid from the contributions allocated to the participant's account and the LI is an asset in the participant's account. The participant designates the beneficaries of the LI proceeds. Therefore the shares of stock should be allocated to the participant as an asset in his account since the shares are analagous to a dividend.

If the policy was issued to trustee of the plan and paid by general employer contributions to the plan for the benefit of all participants then the LI is an asset of the plan and the shares should be sold and the value allocated among all the participants of the plan. in this case the trustee is the beneficary of the LI proceeds. You really need to read the plan document to see how LI is treated under the plan as an asset in order to answer this question.

[Guest Elizabeth Gaskins]

thanks for the info... very helpful

[david rigby]

mbozek,

Excuse my ignorance, but why do you state "...the shares should be sold"?

[mbozek]

Because the shares on a single policy will be an additional investment and usually are too small in value to be worthhile keeping and tracking performance. Also division of shares among all of the participants in the plan will result in each participant receiving fractional or odd lot shares. Its just a practical thing-- usually not worth keeping such small investments in plan.