412(i) plan - reduce formula

[jkdoll2]

How do you reduce the formula in a 412(e) plan? The premiums for the insurance are the same each year - it is just the annuity that changes. If you reduce the formula the death benefit also gets reduced, doesn't it. Do you have to reduce the insurance policies death benefit? Do you do a fresh start like a typical DB plan if you reduce the formula?

The company has hit hard times - and instead of terminating the plan - they just want a smaller contribution.

Thanks

[SoCalActuary]

How do you reduce the formula in a 412(e) plan? The premiums for the insurance are the same each year - it is just the annuity that changes. If you reduce the formula the death benefit also gets reduced, doesn't it. Do you have to reduce the insurance policies death benefit? Do you do a fresh start like a typical DB plan if you reduce the formula?

The company has hit hard times - and instead of terminating the plan - they just want a smaller contribution.

Thanks

So the plan provides a person with a projected $10,000 monthly benefit, at a cost of $50,000 per year.

Now you reduce the projected plan formula to $8,000 per month. This produces a funding target that is 80% of the old formula. The insurance company will project the current policy cash values to NRA and determine the annual premium that produces the new lower target. The premium goes down accordingly.

To do so, you need a plan amendment, 204(h) notice, and new calculations from the insurer. Note that you cannot do so retroactively, but you must still pay the premium due for last year, since that occurred and was earned before you made the amendment.