HEART Act

[Belgarath]

401(a)(37) as amended by the HEART act seems innocuous enough. But the devil is in the details.

It's clear enough that someone who dies while performing qualified military service would become 100% vested if the plan provides for 100% vesting at death.

What happens when you have a Profit Sharing plan that provides for life insurance? While the Code itself says nothing about this, the JCT explanation includes the term "ancillary life insurance" benefits. So, must an employer continue to pay premiums for any person who is in qualified military service?

Let's assume the answer is yes. Is the premium deductible as a contribution under 404? And if the participant never returns to qualified reemployment, is the increase in value then treated as a forfeiture?

The same basic issue could apply to a DB plan as well, I suppose, modified due to the differences in benefits vs. account balances.

And another thing - I have an impression that perhaps not all life policies pay the full face amount for death due to war/military service? If so, then this could require some pretty fancy plan language to make sure the plan itself doesn't incur a huge liability for which it doesn't receive the requisite face amount from the insurance company.

I've seen a big fat nothing in terms of IRS discussion/guidance. Does anyone with "contacts" there know if they are considering this issue?

[Bird]

We always took premiums out of a participant's account (almost no plans any more with insurance, yay!), so the only issue I see there is potential incidental benefit restrictions, which seems unlikely.

And if a policy paid less than full face value, I see the plan as a mere conduit of those benefits.

I may be missing something but I don't see any problems.

[Belgarath]

Thanks Bird. In that case, it would seem that you could interpret the requirements of the HEART act to override the normal incidental premium limitations without plan disqualification. It seems like it would be impossible for the IRS to assert a violation when following the requirements of the law...

How would you interpret it if the participant had only been there for 2 or three years - it would be quite possible for the premium to exceed the account balance after another 2 or three years. In that case, then it would seem there's no alternative other than for an employer contribution in the amount of the premium?

All this seems so ridiculous - the employee's account balance is going to suffer badly.

I suppose that another interpretation might be that incidental limits still applt - and therefore, the employer must make the full contribution required to keep the ongoing premium within incidental limits.

What a PIA!!