Deceased participant and Required Life policy(ies) not purchased

[flosfur]

A calendar year DB plan’s death benefit is the greater of PVAB or the (insurance) Policy proceeds. The face amount of the insurance policy to fund the death benefit is 100 times the projected benefits.

For purchasing the insurance policies, the plan states:

“….. as soon as practicable following the Anniversary Date coincident with or following a Participant’s satisfaction of the eligibility requirements, the Administrator will direct that a life insurance contract be purchased with a face amount ……………..

The Anniversary Date is January 1.

A participant met the eligibility late 2002 and entered the plan on 1/1/2003. A life policy was purchased for him based on his projected benefit computed @ 1/1/2003 (BOY val date in case the actuarial val date is of any consequence).

As a result of increased projected average comps, projected benefits computed @ 1/1/2004 and 1/1/2005 increased and additional polices were required for 2004 and 2005 for all participants (for both years the required policy face amount was above the minimum threshold required for a policy to be purchased).

The participant died (suicide) during January 2005.

Except for the deceased participant (obviously too late to buy a policy), the required additional policies for 2004 were purchased in April 2005 (made effective in 2004) for all participants. The additional policies for 2005 have not been purchased yet.

Admittedly, there was not enough time to perform calculations for 2005 to determine the additional policies required let alone purchase them. But what about the required additional policy for 2004? Do the beneficiaries have a claim against the Plan/Plan Administrator?

Does the following affect the answer?

1/1/2004 computations were done mid 2004 and the sponsor had funded the required 2004 contributions, including the required premiums (split funding method) for the existing policies and for the additional required policies for 2004, by December 2004!

[Belgarath]

Ignoring for the moment any possible negligence (and I'm not implying that there was) on the part of the Plan Administrator for not purchasing the policies in a timely fashion...

Don't insurance policies generally have a 2 year "suicide exclusion" so that even if the policies had been issued, there would have been no death payout other than a return of premiums? You might want to check this out with the insurance company.

[flosfur]

I am not in insurance so I cannot say without reading the policy.