Payment of Insurance Premiums

[Bruddah Kimo]

I inherited a 401k Profit Sharing plan from a colleague that ran for the hills last summer. This plan maintains insurance policies as part of the trust for some of the older participants as a holdover from a past reincarnation of the Plan. Every year the sponsor pays the insurance premiums out of the assets put aside for a profit sharing allocation. The premium was deducted from the PS allocation payable to the participant. This year however, he has elected not to make a PS allocation to the Plan. He's asking how to go about paying the insurance premiums since they are now due. I want to be careful; this is the first time I'm dealing with insurance as part of the trust. I would think that the premiums should be paid by accessing a fee against the balance of the vested assets in the participant accounts, but I want to be sure this is OK. Anyone have thoughts on the subject?

Mahalo for your insight! Excerpt from Plan doc:

"(d) Payment Of Premiums: If Employer contributions are inadequate to pay all premiums on Policies, the Trustees may, at the direction of the Plan Administrator, utilize other amounts remaining in the Trust Fund to pay the premiums, allow the Policies to lapse, reduce the Policies to a level at which they may be maintained, or borrow against the Policies on a prorated basis if borrowing does not discriminate in favor of Policies issued on the lives of officers, Shareholder-Employees and/or Highly Compensated Employees."

[SheilaD]

Yes you can pay plan premiums for the insured participants account. Just make sure that over the life of the plan the total of all premiums paid is less then 25% (50% for whole life) of all contributions and forfeitures paid to that participant.

[Bird]

Yes, it's ok. In my plans that have insurance (fewer and fewer, to everyone's benefit), we treat premium payments as a transfer from once account to another, not as a fee.

[Bruddah Kimo]

Thank you so much!