Sale of Ins. Policy to Participant

[Randy Watson]

PTE 92-6 allows for the sale of a plan's insurance policy to the participant covered by the policy as long as certain conditions are met. One of those conditions is that "the contract would, but for the sale, be surrendered by the plan". I'm not sure I understand what that means. Any thoughts on what the DOL might be getting at here? Thanks.

[zimbo]

It could refer to a plan that is terminating and, but for the sale, would cash in the policy. Or, a plan that is eliminating life insurance as a benefit under the terms of the plan. Or, most commonly, a participant is terminating and, but for the sale, the policy would be discontinued.

[SoCalActuary]

PTE 92-6 allows for the sale of a plan's insurance policy to the participant covered by the policy as long as certain conditions are met. One of those conditions is that "the contract would, but for the sale, be surrendered by the plan". I'm not sure I understand what that means. Any thoughts on what the DOL might be getting at here? Thanks.

Typically, this applies when a participant has terminated employment and the plan sponsor offers a chance for the participant to keep their insurance by buying it from the plan.

Also, this applies when a participant has "too much" insurance because the benefit formula is lowered, frozen, or participant pay drops.

Finally, some plan trustees decide that insurance policies cost too much, so they plan to surrender them.