Getting insurance out of a 401k

[Guest KJSpaeth]

my plan wants to convert to a provider that doesn't accept insurance policies. Out of 750 people I only have 20 insurance policies and a lot of them have lagged on payments. How can I get these policies out of the plan and what how will they affect the participants that have the policies? I have heard that the participants can pay the cash surrender value and the policies can be moved out of the plan into the participants name, is this true? If so is it a taxable event?

[Earl]

There's a PTCE that allows for the purchase by an employee (not taxable, plan has same value before and after). Or it could be surrendered (not taxable, CV stays in plan). Or it could be distributed to a term'ed ee (taxable event).

[MWeddell]

As I recall, the prohibited transaction class exemption does not 100% sanction paying the cash surrender value. In any case, it's a complicated enough issue that you should read the class exemption itself, not just rely on our summaries of it.

[Guest JimJ]

I agree with the others, but one other thought is this. Find a provider that does allow insurance to remain in the plan that offers the features your looking for and forget the hassle. As a fiduciary your should consider all choices before taking action.

[Kirk Maldonado]

I disagree with JimJ. I don't think that whether a service provider allows participants to invest in life insurance should drive your decision about what service provider to use. Stated in a different fashion, the value of allowing participants to have their account balances invested in life insurance should not be a major factor in deciding what service provider to use.

[mbozek]

Perhaps you should consider retaining the LI policies in the current trust which would become a sub trust of the plan maintained by the new provider. Also who owns the policies in the plan? The participants or the trustee? Check the plan document to see if the trustee has the authority to cash out the policies without the consent of the participants. If not consider adding such a provision. The accounts of the participants would then only hold cash unless the participant purchased the policy under the PTCE.