Document Provisions.

[Guest Kevin1]

I received a potential take over plan. In looking at it: 1) There is an insurance policy in effect for one of the two eligible HCEs. No other participant has a policy in force. 2) In looking at the document there is nothing about insurance except that the trustees can purchase any contract from an insurer. They also define an insurer. That's all.

In contacting the prior administrator she said the plan was previously a Money Purchase Pension Plan and that when it was converted to a Profit Sharing Plan they ceased allowing new insurance policies. There are a couple of employees hired in 1981 and 1999. I'm unsure if they were even offered insurance under the old plan. Clearly on one else has been offered insurance coverage. She also said there were no other provisions relating to insurance other than the plan allows the trustees to invest monies any way they want.

She wasn't concerned with only one HCE having a particular benefit under the plan or that no one else had. THis is because of their "not allowing new policies".

My document spells out insurance in detail to include "authorizing" the purchase of insurance.

I think there is a benefits, right & features issue. I don't think their not allowing new policies when the plan was converted to a PS plan carries much weight.

Where is the requirement that the plan give detail on insurance purchase? Is there a listing of required document provisions out there? On an IRS site, or?

Your thoughts.

[Bird]

I thought that allowing insurance could be discontinued without creating a BR&F issue but have no cite or reasoning, just that recollection.

But from a practical standpoint, I'd probably just express my concerns to the client and note in my engagement letter or elsewhere that I'm taking over a plan that doesn't allow insurance but that has an existing policy, and don't blame me if it blows up later. And I'd encourage the insured to buy it or otherwise get it the heck out of the plan.

[MWeddell]

There may be a problem here.

One would like to characterize the BRF to be tested not as owning an insurance policy in the plan but having the opportunity to own an insurance policy in the plan. However, this doesn't seem to fit the facts because even those employees who had account balances back when the insurance feature was discontinued can't now buy insurance. I can't get the rules from Treas. Reg. 1.401(a)(4)-4(b)(3) to fit.

[Guest Kevin1]

Thanks MWeddell. That was basically my problem. There is not documentation that the "old employees" have or had knowledge of the ability to purchase insurance and, in fact, opted not to purchase. So, it seemed to be an ongong issue.

Thanks, Bird also. I advised the trustee to review the whole insurance issue with his advisors and encouraged him to get it out of the plan.