Life Insurance IN a DB Plan but Participant is Uninsurable

[emmetttrudy]

Have a DB Plan with life insurance. Just found out from the insurance broker that one of the employees is not insurable!! Are there any other options? If so, what are they? Have never encountered this before.

[Andy the Actuary]

The Plan document may cover this situation.

[JAY21]

Also, I don't think everyone has to have life insurance in the plan. It's a benefits, rights and feature that must be tested for discrimination but depending on the number of employees in the plan, and those that have insurance vs. those that don't, you might still pass even if this person doesn't get it.

[Andy the Actuary]

Also, I don't think everyone has to have life insurance in the plan. It's a benefits, rights and feature that must be tested for discrimination but depending on the number of employees in the plan, and those that have insurance vs. those that don't, you might still pass even if this person doesn't get it.

While this is true, what has SPD told employee? Hopefully, that if he is uninsurable . . .

[emmetttrudy]

it says "For a Participant who is found by the Administrator to be insurable

only at a mortality classification other than standard, the Trustees on a uniform and

nondiscriminatory basis shall either (1) purchase an insurance Contract, with a face

amount that can be purchased at the standard rate for coverage as provided in

Section 5.5(a) for such Participant if such Participant could obtain such coverage,

(2) purchase such insurance Contract, and pay the additional premium attributable

to the excess mortality hazards, or (3) allow the Participant the right to pay the

additional premium attributable to the excess mortality hazards. If a Participant is

determined to be uninsurable, no life insurance Contract shall be required to be

purchased on the life of such Participant."

[Andy the Actuary]

If the participant is uninsurable rather than just nonstandard, then plan gratuitously indicates that no life insurance contract purchase is required. However, broker should provide written documentation that participant has been deemed uninsurable and indicate insurance companies who have so ruled. The Plan needs more than hearsay evidence. There may be highly rated companies that will insure at a nonstandard premium, in which case the Plan has other options.

[emmetttrudy]

Thanks!! He is an HCE so if he didnt have the life insurance I dont think we would have a nondiscrimination issue anyway.

[ak2ary]

that level of discretion is dangerous...the Administrator shouldn't have three choices, he should have one ....or he should have fiduciary liability insurance

[david rigby]

...or he should have fiduciary liability insurance

OR?

[emmetttrudy]

OK, so back to this question. Option #2 the client does not want to do because this means the employer would have to pay the additional premium. The employee is an HCE but not an owner. Option #3 the employee obviously won't go for since that's money out of his pocket.

So that leaves Option #1 which I am struggling to understand a little bit. The life insurance contract is 100X the normal retirement benefit. So let's say the face amount must be $1 million. Is Option #1 saying find out what the premium would be for $1 million face amount at the standard coverage rate, and then use that premium to buy as much coverage you can at the higher insurable rate?

[SoCalActuary]

So that leaves Option #1 which I am struggling to understand a little bit. The life insurance contract is 100X the normal retirement benefit. So let's say the face amount must be $1 million. Is Option #1 saying find out what the premium would be for $1 million face amount at the standard coverage rate, and then use that premium to buy as much coverage you can at the higher insurable rate?

Yes