Life insurance

[SMB]

Employer sponsors a Profit Sharing Plan which allows for the purchase of life insurance. Plan holds a whole life policy FBO the owner, for which premiums are paid from the owner's annual plan contribution.

Client received a letter from the insurance carrier regarding Rev. Ruling 2004-20 indicating that, for policies containing a disability waiver of premium feature, the portion of the premium (i.e., employer contribution) attributable to same MAY not be currently deductible, possibly resulting in a non-deductible employer contribution - and all of the the ramifications thereof.

First I had ever heard of this and was curious if anyone else had ever encountered same, especially in conjunction with a DC vs. DB plan?

Thanks!

[Belgarath]

Based upon my reading of the RR, I'd say it applies to pension plans (both db and dc) but not profit sharing plans. (Since ps plans are specifically permitted to purchase life, health or accident insurance under 1.401-1(b)(ii)).

Now, IMHO it is foolish for the IRS to apply this to any DC plan, my opinion doesn't matter!

[GBurns]

I have not read the RR, but I am not surprised. Disability Waiver of Premium is getting the same treatment that Disability Income Rider gets in PLR 200339015 etc and Return of Premium gets in Cancer and other plans in TAM 199936046.

The reasons are mainly because of the employer contribution and that the benefit is not for either medical expense nor personal physical injury or illness.