Insurance & B/R/F issues

[JAY21]

Advisor wants to put in whole life policies for owners and term policies for staff. No doubt this flies in the spirit of the (a)(4)-4 regs on discrimination within benefits, rights, and featurs. However, is there something "explicit" that states the polcies have to be of the same type ? Did the guidance on insurance that the service issued a year or so ago (mostly directed at 412i policies) address this issue ? Just looking for something specific if it exists to show the advisor.

[JAY21]

Never mind, I found the answer in Rev. Ruling 2004-21 (even cash growth feature in insurance policies is a benefit, right, and feature subject to discrim testing). I think that about wraps it up.

[could be me maybe not]

Jay, would you mind summarizing what you learned?

[JAY21]

I probably can't summarize the entire Rev. Ruling as I was just skimming it for a specific mention of discrimination within different types of insurance policies. The relevant paragraph that to me seemed to address it is below:

Revenue Ruling 2004 – 21 (select paragraph)

An other right or feature is any right or feature applicable to employees under the plan (other than a benefit formula, an optional form of benefit, or an ancillary benefit) that can be expected to have meaningful value. Under §1.401(a)(4)-4(e)(3)(i), a distinct other right or feature exists if a right or feature is not available on substantially the same terms as another right or feature. Under §1.401(a)(4)-4(e)(3)(iii)©, the right to a particular form of investment, including, for example, a particular class or type of employer securities (taking into account, in determining whether different forms of investment exist, any differences in conversion, dividend, voting, liquidation preference, or other rights conferred under the security) is a distinct other right or feature. Similarly, differences in insurance contracts (e.g., differences in cash value growth terms or different exchange features) that may be purchased from a plan can create distinct other rights or features even if the terms under which the contracts are purchased from the plan are the same.

[could be me maybe not]

So perhaps the portability of one type versus another could be the catch. I would think the the cash value issue would only be an issue for a dc plan. Right?

Thanks for the update.