I have been receiving an abnormal amount of questions regarding Section 79 plans

[SteveH]

For many years I have heard the term Section 79 plans. When I do a search on the topic all I see is some blurbs about group term life insurance. I don't even get a google ad in the margin. These can't be very popular if no one is willing to pay a nickel for a targeted ad search.

Anyway, I get the impression that the 412(i) crowd is looking around for a new code section. I am meeting with someone Thursday to convince them that their clients don't need to be involved in a Section 79 plan, but I really don't know enough to talk about it. When the financial advisor first asked if I knew about Section 79 plans, I got confused with Section 72(t). I'm sure I am not far off with the 412(i) reference because if you do a search for "Section 79 retirement plan" you will get a 412(i) plan website that is now pitching section 79 plans.

From what I can determine Section 79 is not a qualified plan, but they claim to be tax deferred. They have something to do with insurance.

I feel like I know where this is heading, but anyone here know if anything is going down?

[SoCalActuary]

Insurance guys just gotta sell something.

Look in the industry literature to see if anyone is promoting a new way of looking at Sec. 79.

For your info, the attached file has the direct wording of the IR Code 79.

If you choose to review it, I would be curious if anything really interesting comes out.

IRC79.txt

[Mark Whitelaw]

If it’s what I’ve seen – stay away.

It’s a defined contribution program into executive owned 1958 cso based whole life insurance policies. The employer gets to deduct their contributions. The executive does not have to take the entire premium as taxable income. Basically the IRS lets you take a discount if you are foolish enough to buy such outdated undervalued contracts. There are only two policies left in the US available for this program. Starting in year eight you can 1035 exchange the money to a new generation policy.

The flaw is if you compare the discounted amount the executive takes as income and simply applied that amount to a current generation institutionally priced life insurance (ILI) policy the executive is miles ahead from day one … plus … you’ve reduced the company's cash flow. The executive initially has 100%+ cash value to premium in ILI and 15% - 20% in the other. The difference is night and day.

The winner is the agent. They earn 50% - 75% commission in year one on the higher cash flow to whole life vs. 10% - 15% on a lower cash flow to a new generation ILI policy.

[AndyH]

I guess the 412(i) crowd has a lot of time on their hands to think in between reading "Howdy letters", laundry duty and once a week showers. But let's hope they are not out on work release thinking these things up.

[Ron Snyder]

There are a few vendors (formerly 419 sellers) that are now selling so-called "Section 79" plans. I have looked at several of them and NONE of them are close to being in compliance with current law and regulations.

True Section 79 plans allow the employer to provide life insurance coverage, both pre- and post-retirement, to employees. The abusive plans claim to be Section 79 plans but attempt to provide additional benefits that neither comply with the split-dollar regulations (even though they fall squarely under the definition of a split dollar arrangement) nor the new 409A law and Regs.

All the plans I have seen within the past 2-3 years are bogus. WATCH OUT!