412(e) plan

[jkdoll2]

Can you use the cash accumulative in the insurance policy in a 412(e) plan to pay the premium for the insurance?

Do you have to make the annuity premium since there is not a minimum funding requirement?

The plan wants to terminate and rollover the funds to a profit sharing plan - but does not want to make the contribution for 2009 for the annuity and use the cash in the insurance policy to pay the premium for the insurance so it will not lapse.

This is an owner only plan (1 participant) - can they do this?

Can a 412(e) plan be frozen as long as the insurance doesnt lapse? They want to keep the life insurance going because of the surrender charges. How does this effect their benefit?

Thanks

[Blinky the 3-eyed Fish]

I don't see how you can use the cash in the life insurance policy to meet the premium and still be a fully-insured plan. I am 99% sure of this fact.

In this case I don't see why being a fully-insured plan is of any importance if they want to terminate. Have you considered switching it to a traditional DB plan? Most likely it is overfunded if you run the 2009 valuation and no contribution will be due for that year.

A traditional DB plan can have life insurance in it, that's not exclusive to fully-insured plans. In fact the limits are the same. So, the policies can remain in the plan, the plan can be frozen and the surrender charges are preserved.

Now, if they want to roll it over into a PS plan and there are still premiums to pay on the policy, I believe the policy, even though it's a rollover, would be subject to the DC rules to determine if the life insurance benefit is incidental. I am not positive by any means though, so this is definitely something to look into.

[jkdoll2]

Can you use the cash accumulative in the insurance policy in a 412(e) plan to pay the premium for the insurance?

Do you have to make the annuity premium since there is not a minimum funding requirement?

The plan wants to terminate and rollover the funds to a profit sharing plan - but does not want to make the contribution for 2009 for the annuity and use the cash in the insurance policy to pay the premium for the insurance so it will not lapse.

This is an owner only plan (1 participant) - can they do this?

Can a 412(e) plan be frozen as long as the insurance doesnt lapse? They want to keep the life insurance going because of the surrender charges. How does this effect their benefit?

Thanks

What if you convert it to a regular DB plan and it is to overfunded to terminate? You would have to pay taxes on it, isnt that correct?

Is it easy to convert it to a regular DB plan?

[Blinky the 3-eyed Fish]

The one participant can be allocated the excess assets. The limits for distributions are no different in a traditional DB plan versus a fully-insured plan. There is a recent post about the ease of switching to a fully-insured plan. I invite you to search for it.