Cash balance fully-insured plan rules

[SoCalActuary]

A new client was placed in a plan claiming to be a fully-insured (412(i)) cash balance plan with a companion fully-insured profit-sharing plan. This was originated back in the mid-2000's, driven by an agent who may have regulatory issues, which we are investigating. I am challenged by several issues, and appreciate your thoughts in general, and if you have personal experience, maybe some stories or facts to share.

First, it is clear that this must be an individually drafted plan. Is it possible to get copies from the IRS of any past plan submissions for qualification? None of the vendors (agent, or the three insurance companies used) has produced a plan document, although we are still pressing the issue.

Second, given the disparity in contributions by policy, we need to test non-discrimination. Would a cash balance plan projection be based on the credited interest rates in the individual policies? (So far, we do not see any variable annuity policies in the history, so I expect some stability on this issue.)

Third, I would expect that the fully-insured status was used to avoid an enrolled actuary certification, although I would expect that the insurer had actuarial review on the proper premiums for each policy. How does this meet the requirements for avoiding EA review, given that this is not a level premium safe-harbor design for a flat benefit or unit benefit plan with a minimum 25 year accrual rate (as far as I can determine so far)?

Any suggestions or comments would be appreciated.

[DMcGovern]

Wow

Would definitely want to see a plan document for both plans. If there is one, it's difficult to believe they received a favorable determination letter - although it's doubtful that was ever applied for.

How are they meeting the insurance limitations in the DC plan? Not

In addition to producing documents, I would also be looking for/requesting copies of 5500's for past years.

[shERPA]

Last time I took over a fully insured DB plan around 2007 or so, the client actually had an email from the "TPA" telling them that they did not need a plan document, just the policies and that this saved them a lot of money. This "TPA" was an ASPPA member (but not credentialed as I recall).

I only mention this to suggest that a plan document may not, in fact, exist. You can't really address anything about benefits, nondiscrimination, etc. without a plan document. Unless the plan document says the crediting rate is the policy rate, I don't think you can assume this. Arguably without a document the plan doesn't even exist.

Probably zero chance of getting documents from IRS even in the unlikely event it was submitted. Remember their "we are in the process of perfecting our records" letters?

In my experience you are giving much more credit to the insurers than is due. Some insurers did offer fully insured DB plans with bundled services where the insurance co would determine the benefits and the policy amounts needed to guarantee the benefits. If this is a CB/PS combo from the mid 2000s it is almost certainly a roll-your-own deal put together by the insurance agent and the policies sold would have the normal disclaimer that the insurer is merely issuing a policy and their only responsibility is to follow the terms of the contract, and that they make no representations regarding the use of the policy in any plan or its tax treatment.

Time for the client to lawyer up I'm afraid. This may not be salvageable.

[SoCalActuary]

well, we have resolved to ask the insurer how they determined the premiums for past years, and asking the prior tpa for their explanations, but meanwhile we are proceeding assuming that future years will not be fully insured, nor exempt from actuarial certification.