DB Plan With Life Insurance

[Dougsbpc]

We inherited a DB plan with Life Insurance. This plan is sponsored by a small corporation with 10 participants.

The Death Benefit under the plan is the greater of Insurance proceeds less cash value or the present value of accrued benefits.

The document indicates the face amount of policies shall be 100 times the anticipated monthly benefit. With an on-going plan the face amount for each participant is their projected monthly benefit X 100. Does anything change if the plan is frozen? In this case there were 2 new entrants in 2008 who accrued benefits. The plan was then frozen 1/1/2009. Must policies be based on their projected benefits even though the plan is frozen?

The goal here is to make sure all participants have the proper amount of insurance.

Speaking of the proper amount of insurance, the 100% owner of the corp (and only key employee) only has insurance of about 50 times his monthly benefit. Could he waive (in writing) the remaining amount that the plan would ordinarily purchase for him?

[tymesup]

Assuming the two new employees are NHCE's, the plan calls for the projected benefit.

I don't believe this death benefit is protected under 411(d)(6), so the plan could be amended to provide a lower amount. If the owner is happy with 50x, you could cut everybody back to that level. You want the amendment in place soon, so you don't have to purchase 100x and then cut these two back. The agent is not going to be a happy camper.

[david rigby]

If the plan is frozen, that changes the projected benefit, doesn't it? Sounds like the definition of the death benefit (100 x proj benefit) is unchanged, but the amount of the proj benefit has changed.