Nondiscrimination for Group Term Life

[Guest jgordon]

Section 79(d) of the Code provides that a group term life plan may not discriminate in favor of HCEs. Prior to 1989, 79(d)(7) provided that the controlled group rules of 414(b), © & (m) were in effect. However, 79(d)(7) was amended out. Now I can find nothing that brings in the controlled group rules. So if owners of a company set up a management company and are the only employees of a management company can they set up a group term life for the management company and effectively circumvent the nondiscrimination requirement.

This does not seem to make sense. Why have nondiscrimination if I can just set up another company and circumvent. However, I can not find anything in 79(d) that gets me to 414(b). And lending even more weight, the prior reference to 414 was amended out of 79(d).

I just am having a hard time believeing this result. Am I right that controlled group rules do not apply to 79(d) or am I misssing something?

Thanks for your help in advance.

[Ron Snyder]

You are missing something. Read IRC Sections 414(t) (general rule) and 414(n)(3)© (leased employees).