annuity contract versus life insurance

[cpc0506]

Prior TPA showed Life Insurance in the 401k plan. In working through the 2014 valuation work, we, the new TPA, are thinking that what the client actually has is an annuity contract (investment vehicle) and not Life insurance (welfare benefit).

We are basing this on the Schedule A information provided by the Insurance Company holding the contract. And the fact that there is no mention of cash surrender value or death benefit on the pages as provided by the Insurnace Company.

Am I missing something?

[GBurns]

Until quite recently, annuities were Life Insurance products, hence the lack of differentiation. Old habits die hard.

In a recent thread we discussed the reporting of CSV . If I recall correctly, we were split on the issue, but, if you look up filings you will see that very few do report CSV. This seems to be partially because the info is not readily provided by the insurance companies..DB would not be a Plan Asset until paid by the insurance company..

I suggest that you search for some of the previous threads.

[Mike Preston]

DB would not be a Plan Asset until paid by the insurance company..

I suggest that you search for some of the previous threads.

DB would most assuredly be a Plan Asset at its fair market value!!!!! See RP on this issue. Think it is 2005-20. Maybe.

[Bird]

For what purposes did the prior TPA "show" it as life insurance? On an account balance statement, balance sheet...?

Is there an individual who purchased this, effectively as a self-directed asset? It would be unusual to do that for an annuity.

I wouldn't take Schedule A info to mean anything as far as identifying the type of contract.

I'd ask the participant and/or agent to clarify.

[Bill Presson]

Mike, George said the death benefit isn't an asset until paid by the insurance company. Am I misunderstanding your answer?

WCP

[Mike Preston]

LOL. I interpreted George's statement as "if it were a defined benefit plan....", not "death benefit".

I agree that death benefit is not an asset until, at least, death. Maybe not even until paid, although I think I'd carry it as a receivable upon death, rather than wait until it is paid to reflect it in assets.

[GBurns]

The Death Benefit of a Life Insurance policy does not exist until there is the death of a covered insured. While the policy is in force it has terms such as "Specified Amount" " Amount of Coverage" " Face Value" etc. Most policies have an adjustable death benefit payable upon death. The amount payable depends on the Payment Options and could be a Specified Amount or more likely, since the OP mentioned Cash Surrender Value, it would be the Accumulation/Account Value plus the corridor amount or the Accumulation/Account Value plus the greater of either the Specified Amount or the corridor amount or it could be another Option. In short, the insurance company cannot say how much is payable until there is a death and the selection of a Payment Option.

Since, the amount is not known and since the amount is not available to the Plan, it cannot be a Plan Asset until there is a death and a selection of Option.

[Mike Preston]

Not in my world.

[SFSD]

I've always thought life insurance or annuity cash surrender values were considered a plan asset. Am I missing something here??

[Bird]

I've always thought life insurance or annuity cash surrender values were considered a plan asset. Am I missing something here??

In my world they are. For DC plans, I have seen life insurance premiums reported as expenses and the CSV effectively ignored thereafter, but don't believe it is correct and have satisfied myself with that opinion by going over the 5500 instructions pretty carefully...don't remember the details and not inclined to look it up.

I think there is some confusion about it because if you irrevocably transfer a liability to an insurance company, e.g., by purchasing an annuity contract to pay a lifetime income, then it is effectively a benefit payment and then no longer a plan asset, which makes sense. That's somewhere in the 5500 instructions.

In my world, anything that can be converted to an(other) investment is an asset of the plan. So insurance cash values and annuity surrender values are assets. It means you have a large loss in the first year or two of an insurance contract, but so be it.

[GBurns]

I think that we are talking about different things at different stages of the product cycle.

The OP lamented "the fact that there is no mention of cash surrender value or death benefit on the pages as provided by the Insurnace Company."

The OP did not say what the "the Schedule A information" was and was not sure whether the item was a LI or an Annuity. As a result we do not know whether the item is in a payout stage or still in force in "accumulation",