Life Insurance in DB plan

[Guest DCquestioner]

Do the 100x or 2/3 limitations on life insurance apply anytime the plan invests in an insurance type product? or do they only apply if the plan's death benefit involves proceeds from the policy.

That is, if the only death benefit is the PVAB, does it matter if the plan invests all its money in an insurance policy?

[rcline46]

Not all products sold by an insurance company are insurance policies. For example, an annuity is not an isurance policy. YOu will need to be more specific as to the type of product in question.

[Guest DCquestioner]

This is more a general information question for me. Let's assume we're talking about an actual life insurance policy.

[rcline46]

Who is the named insured and what is the insurable interest in the named person?

Is it prudent to invest all the funds in an insurance policy assuming it can be issued?

What kind of policy? Variable life, whole life, term, universal life?

Is this a 412(i) (now e) Plan in which case the IRS says NO to just life insurance.

As a general answer to a general information question, NO.

[ScottR]

Do the 100x or 2/3 limitations on life insurance apply anytime the plan invests in an insurance type product? or do they only apply if the plan's death benefit involves proceeds from the policy.

That is, if the only death benefit is the PVAB, does it matter if the plan invests all its money in an insurance policy?

Check Rev.Rul. 2004-20. If the insurance amount exceeds the plan's death benefit by more than $100k, you've got a problem. Exerpt from the RR...

Employer contributions under a qualified defined benefit plan that are used to purchase life insurance coverage for a participant in excess of the participant's death benefit provided under the plan are not fully deductible when contributed, but are carried over to be treated as contributions in future years and deductible in future years when other contributions to the plan that are taken into account for the taxable year are less than the maximum amount deductible for the year pursuant to the limits of §404.

LISTED TRANSACTIONS

Transactions that are the same as, or substantially similar to, the transaction described in Situation 2 of this revenue ruling are identified as "listed transactions"for purposes of §1.6011-4(b)(2) of the Income Tax Regulations and §301.6111-2(b)(2) and §301.6112-1(b)(2) of the Procedure and Administration Regulations effective February 13, 2004, the date this revenue ruling was released to the public, provided that the employer has deducted amounts used to pay premiums on a life insurance contract for a participant with a death benefit under the contract that exceeds the participant's death benefit under the plan by more than $100,000.