412(e)(3) to Traditional DB

[stbennet]

The adoption agreement lists actuarial equivalence as "N/A - plan is fully insured." Once the plan fails to meet the 412(i) requirements, are there guidelines on how the plan should determine actuarial equivalence?

[ETA Consulting LLC]

It would still be "N/A" because the accrued benefit for the 412(e)(3) plan through the date of termination will be reflected and funded entirely through the annuity and insurance contracts. Keep in mind that in a 412(e) plan, the actuarial assumptions used for plan funding are within those annuity and insurance contract. One common way of looking at it is that the plan is never overfunded or underfunded. Any additional earnings beyond the contract guarantees are used to reduce the premium each year. There isn't a shortage because you are (or should be) using fixed annuity and insurance contracts.

So, when you change to Traditional DB, the 412(e) portion remains frozen and funded while a trust is set up for the Traditional DB funding attributable for the ongoing accruals.

Good Luck!

[DMcGovern]

It would still be "N/A" because the accrued benefit for the 412(e)(3) plan through the date of termination will be reflected and funded entirely through the annuity and insurance contracts. Keep in mind that in a 412(e) plan, the actuarial assumptions used for plan funding are within those annuity and insurance contract. One common way of looking at it is that the plan is never overfunded or underfunded. Any additional earnings beyond the contract guarantees are used to reduce the premium each year. There isn't a shortage because you are (or should be) using fixed annuity and insurance contracts.

So, when you change to Traditional DB, the 412(e) portion remains frozen and funded while a trust is set up for the Traditional DB funding attributable for the ongoing accruals.

Good Luck!

What happens to the life insurance once it is converted to a traditional DB? (isn't it most likely over the limit per Rev Rul 74-307?)