412(i) Plan and Election to Participate in Announcement 2005-80 Settlement Initiative

[Guest EMM118]

I was wondering if anyone has had any dealings with this IRS under Announcement 2005-80 with respect to a 412(i) plan. In particular, if a company could have deducted 125k under a traditional DB plan but instead contributed 200k under a 412(i) plan, is the starting point in IRS discussions the difference of 75k. Thanks in advance. Ed

[SoCalActuary]

Before you concede the $75k deduction, look at the db cost with similarly conservative assumptions, ie a valuation using the guaranteed rates in the policy. The justification is that they are consistent with the investments.

However, you still have to deal with other issues, such as excess insurance values above the allowable death benefit, possible differences in policy form between participants (term vs cash value), coordination of the life and annuity products, whether the policies existed before the end of the year, and top-heavy minimums.

Do any of these issues threaten the qualified status of the plan? If so, the entire cost is at risk.