401k and Life Insurance Policies

[Guest joeydell]

What is the standard procedure for a terminated 401k participant to take their life insurance policy out of their former employer's 401k plan. Can this be done by merely changing the policy's owner from the plan sponsor back to the insured?

It was my understanding the general way to do this is to have the insured "buy" it out of the plan w/ money out of his pocket.

I'm transfering a plan to a new vendor that will not accept life insurance w/o an outside TPA and the owner isn't willing to do that.

Any guidance would be appreciated.

[Guest Ernie Guerriero]

joeydell;

I'm not sure of a "general way" to terminate the life insurance in a plan. However, you must first check with the terms of the plan document first. Usually, there are conditions for i) surrender or termination of the contract, thereby the cash value is transferred; ii) distribution-in-kind, which is not applicable in this situation since the new document does not allow insurance; and/or iii) purchse.

Keep in mind with a purchase there are guidlines regarding the "fair market value" under Rev. Proc. 2005-25 that prescribes the general principle's of valuing a life insurance contract.

Check the existing plan document. Hope this helps.