Life insurance 401(k) valuation in balance sheet & on 5500

[Guest DianeW]

Hello,

I have a client who added life insurance to the Plan and purchased a couple of whole life policies in late December of 2013.

While the premiums are substantial, the only portion of them which had cash value at year end are the Paid Up Additions.

The cost of insurance was almost as high as the value of the PUAs, and I'm not sure where and how to account for this on my balance sheet and 5500.

My prior experience has been with older policies where the premium simply adds to the overall cash value.

I was thinking of accounting for the COI as an expense, like other expenses, but an alternative is to call the COI a withdrawal from the plan, since it's not the same as a normal plan expense.

Call it withdrawal? Expense? Something else? Thanks for your help!!

[Bird]

I have always treated the premium as a purchase of an investment, and the difference between it and the end of year cash value in the first year will be an unrealized loss. I've seen it treated as an expense and the cash values don't get reported on the 5500, but don't believe that is proper.