Life Insurance Questions

[Ron401k]

Took over a plan without knowing there was a life insurance asset. Prior bundle provider did not disclose this asset on their statements/reporting. We discovered the asset while trying to prepare the 2016 5500 and realized we were short over $1M in plan assets.  Concluded that the life insurance asset was rolled into the plan in 2015, and it appears to be an owner's life insurance policy, it is in the name of the plan and appears to have a $90,000 loan against it (not being repaid). Prior document had no indication that life insurance was allowed as a plan investment. Trying to decide if we want to keep the plan admin business or let it go since we don't have experience with life insurance as a plan asset.  We can learn, but do we want to? Is the $90,000 loan an issue? Any guidance is much appreciated.

[Peter Gulia]

If the plan's fiduciary decides the plan no longer wants the life insurance contract and would surrender it, the plan may sell, for fair-market value, the contract to the participant.  A class prohibited-transaction exemption sets conditions for doing this.

 

[CuseFan]

i would question how policy was "rolled" into the plan and yes, the $90k loan is an issue. Personally, I don't like in-plan insurance and prefer to let those who do take care of such plans.

[Bill Presson]

1 hour ago, CuseFan said:

i would question how policy was "rolled" into the plan and yes, the $90k loan is an issue. Personally, I don't like in-plan insurance and prefer to let those who do take care of such plans.

Agree with the question of how it rolled in. Could have been from another plan.

But I'm not sure the $90k loan is necessarily an issue. It's likely to be a premium loan.

[CuseFan]

maybe it's ok, but i just remember taking over a nightmare plan with a number of doctors who each had multiple policies with loans, to the individual docs, that were in excess of limits and sporadically paid - i ran screaming after came to and swore at the colleague who brought the plan in. that same plan owned the building the docs practiced in and leased it back to them. oh the good old days!

[Bill Presson]

17 minutes ago, CuseFan said:

maybe it's ok, but i just remember taking over a nightmare plan with a number of doctors who each had multiple policies with loans, to the individual docs, that were in excess of limits and sporadically paid - i ran screaming after came to and swore at the colleague who brought the plan in. that same plan owned the building the docs practiced in and leased it back to them. oh the good old days!

If the loans are outside the plan, I agree it's an issue. But if it's just money that has been used for premiums, it's not.