Insurance using Revenue Ruling 74-307

[FAPInJax]

Normally, this calculation is performed using actuarial equivalent assumptions (at least that is the way that I was taught) to detemine the ILP normal cost. This is then multiplied by some number less than 2/3 to arrive at the maximum premium. So, for example, the projected benefit (without salary scale) would be multiplied by the AE APR and level funding from attained age would produce the initial ILP normal cost.

A client is now attempting to introduce a similar concept into a 412i plan (I know this is one everyone loves <GGG>). My initial reaction was to produce the same calculations from the first paragraph using the definition in the document for AE. They would prefer to use the settlement rates of the annuity and the funding assumptions in it because it produces MUCH larger ILP normal cost and therefore more insurance.

The argument is that RR 74-307 looks at 2/3 of the uninsured cost. Therefore, if an annuity was bought (using the settlement rates and accumulations in the annuity) - it would represent the uninsured cost.

Any feelings?? (The RR never really referenced how to do the calculations for a DB plan from my experience. The method outlined above was derived based on the principles set forth in the RR)

Thanks for any and all comments.

[Guest merlin]

Frank,

The Corbel 412i document defines the maximum insurance premium as 2/3 of the participant's normal cost under the Typical Level Premium Cost Method. The TLPC is defined as using the plan's definition of Actuarial Equivalent, which is defined as the guarateed rates in the Contract. Contract is defined as any retirement income policy, life insurance policy, or annuity contract. If Corbel says so, it must be right. Right!?!