412(i) Plans and 50% Annuity and 50% Life Insurance Mix

[Guest Edward McElroy]

First, let me preface this question by stating that I'm an attorney and the firm's actuary is sick today. I had a question concerning 412(i) plans. In determining the mixture of acceptable insurance contracts in a 412(i) plan, a number of sponsors use 50% annuity and 50% life insurance. Is this "required" for each participant or could the sponsor satisfy this 50/50 mix on a plan-wide basis?

Thanks in advance for your help.

Ed

[SoCalActuary]

The source of this mix is found in the rules for incidental death benefits.

See RR 74-307 for the original reference.

If the 50% for insurance is in whole life policies, I believe you would comply with the incidental death benefit rules. If you are using variable life, universal life, or term products, you have a different answer. However, this is just a starting point for your own research.

[Guest Edward McElroy]

Thanks for your reply. I've read RR 77-307 and am still wondering if the 50/50 life insurance/annuity mix needs to be satisfied with respect to each participant or whether aggregate plan assets may satisfy the 50/50 life nsurance/annuity mix. Where in So. Cal are you located? SD here (by way of Chicago)

[FAPInJax]

The split must be for each participant. It is not a plan level choice. The split basically permits the plan to pay the face amount of the life insurance minus the current cash value plus the present value of the accrued benefit (in the case of 412i this is the value of the annuities funding the plan).