life insurance on owner only

[SheilaD]

1 man plan with life insurance. After 9 years the employer is hiring some employees. He, being a generous soul, does not want to buy life insurance for his employees. He wants to amend the plan so that no future life insurance is purchased (before the new employees become eligible). Just on the face of it this seems discriminatory to me because there will be a benefit available to HCE's only. I can't see anyway to justify this. However, I promised I would inquire.

Anyone think that this is possible?

Thank you in advance.

[AndyH]

If the question is can he have life insurance for himself in the plan but not for others, the answer is no, that would not be permitted. It would be a benefit, right or feature subject to testing that it will not pass. The timing of the amendment itself could also be discriminatory, as you suggest.

[jpod]

Consider having the plan sell the policy to the insured in accordance with the Class Exemption. I would think that would solve the problem, unless the plan by its terms provides that life insurance on the life of each participant MUST be purchased and held by the plan, in which case you may have a discriminatory amendment problem if you amend the plan to get rid of that.

[frizzyguy]

Just to clarify, who gets the death benefit upon the death of the participant with the life insurance? What is the plan definition of a death benefit.

If the money goes to the plan to pay benefits, than I don't think it's discriminatory as long as everyone has the same death benefit. Am I correct on this assumption? It sounds like it might be a Universal or Whole Life Insurance Policy that was sold to the plan so that the sponsor could put money in a cash value account on top of his premiums. If it's in the trust and the death benefit goes to the plan, I would think that's allowed as long as the plan doesn't allow him to buy the policy at plan termination because no one else gets an offer to buy life insurance in this case.

Purely speculation at this point. I have seen it in plans before set up this way but sadly, or luckily, we didn't win the work.