Incidental Death Benefit

[retbenser]

Participant is at 415 limit. So monthly benefit is $16,250. 100 x Projected beneift = $1,625,000. NRA = 62

Actual insurance is whole Life Policy with Death Benefit = $3,000,000.

In applying incidental death beneift using the 2/3 rule, you are supposed to calculate the ILP Premium and 2/3 of ILP is deductible.

Question: In determining ILP, what is the premium funding toward: $1,625,000 or $3,000,000 or something else

(Or how do we calculate the IL premium?)

Thanks for all responses.

.

[FAPInJax]

The primary question is the age of the participant at this point. The ILP premium is the same as the Individual Aggregate cost in the first year of the plan and is calculated using the AE assumptions (at least in my opinion). The 2/3 test is then applied against this number and compared against the total insurance premiums.

It gets more complicated in subsequent years.

[ScottR]

Participant is at 415 limit. So monthly benefit is $16,250. 100 x Projected beneift = $1,625,000. NRA = 62

Actual insurance is whole Life Policy with Death Benefit = $3,000,000.

In applying incidental death beneift using the 2/3 rule, you are supposed to calculate the ILP Premium and 2/3 of ILP is deductible.

Question: In determining ILP, what is the premium funding toward: $1,625,000 or $3,000,000 or something else

(Or how do we calculate the IL premium?)

Thanks for all responses.

.

ILP was an old funding method, under which the annual "premium" was the level dollar amount that needed to be funded each year, from the participant's entry date until his NRD, in order to accumulate to the projected lump sum at retirement.

To illustrate, assume that projected monthly benefit is $16,250, and that projected lump sum at retirement is $2.4 million. Further assume that there are 20 years from date of entry to NRD, and that a 5% interest assumption is called for. The ILP would be $72,582. i.e. $72,582 deposited at the end of each year for 20 years will accumulate to $2.4 million. The ILP would remain fixed from year to year unless there is a change in the projected LS at retirement.

... Scott

[Andy the Actuary]

Participant is at 415 limit. So monthly benefit is $16,250. 100 x Projected beneift = $1,625,000. NRA = 62

Actual insurance is whole Life Policy with Death Benefit = $3,000,000.

In applying incidental death beneift using the 2/3 rule, you are supposed to calculate the ILP Premium and 2/3 of ILP is deductible.

Question: In determining ILP, what is the premium funding toward: $1,625,000 or $3,000,000 or something else

(Or how do we calculate the IL premium?)

Thanks for all responses.

.

ILP was an old funding method, under which the annual "premium" was the level dollar amount that needed to be funded each year, from the participant's entry date until his NRD, in order to accumulate to the projected lump sum at retirement.

To illustrate, assume that projected monthly benefit is $16,250, and that projected lump sum at retirement is $2.4 million. Further assume that there are 20 years from date of entry to NRD, and that a 5% interest assumption is called for. The ILP would be $72,582. i.e. $72,582 deposited at the end of each year for 20 years will accumulate to $2.4 million. The ILP would remain fixed from year to year unless there is a change in the projected LS at retirement.

... Scott

In which case ILP = ILP₀+ILP₁+ILP₂+. . . ., where increases are funded over the remaining duration rather than on an EAN or aggregate basis. I believe this is the basis for the safe-harbor target benefit contribution under the 401(a)(4) regs. I'd be remiss if I failed to comment that this is the most meaningless post, including jokes, I've ever submitted to this Board.