412(i) plans

[dmb]

What are the advantages (if any) of a 412(i) plan over a traditional DB plan??

[Belgarath]

They are mostly sold by insurance agents with dollar signs in their eyes. But that aside, if a client is willing to accept a potentially lower yield, since the 412(i) plans can be funded ONLY with insurance or annuity products, you can front-load your deductions. So compared to a traditional split-funded DB, your initial deductions are generally greater.

They really aren't, in my opinion, suitable in most situations. There can be, in a minuscule percentage of the situations I've seen, a very small niche where they can work. But rarely...

[dmb]

Thanks for the response. So in a market like today's it might be a good idea. so if someone sets up a 412i plan currently and the market starts coming back (whenever that may be) is there any problem terminating the plan and setting up a traditional plan?

Also, are the returns much greater than money market or fixed income returns??

Thanks again.

[Belgarath]

I'd be pretty leery about establishing a 412(i) plan just because investment yields are temporarily down. Because you can make the same investments in a split-funded plan if that is all you are concerned with.

As far as switching over to split funded, the documents I've seen automatically revert to split funded if you fail to make the required premium payments prior to the policy lapse date. But you'd have to check this question out with the document sponsor or TPA.

And I can't really answer your investment return question. Maybe some of the investment gurus on these boards can. I'd say that in general, an annuity policy would give you a return comparable to fixed investments, and probably higher than a money market. But there are likely to be expenses - loads, surrender charges, etc. which may apply. Again, you'd need to speak with an investment expert. Good luck!