Life insurance -- Incidental benefit rules applies on a cumulative bas

[R. Butler]

I know that premiums paid for a whole life policy within a DC plan cannot exceed 50% of the contributions to the participant. Is this rule applied on a cumulative basis (contributions vs. premiums since plans inception) or a yearly basis. My client generally makes the maximum contribution, but this year only paid premiums.

[Michael Devault]

It's tested on a cumulative basis.

Incidentally, the 50% is reduced to 25% if the insurance is either term or universal life.

Hope this is of benefit to you.

[Earl]

Isn't it rather that aged (2 year old) PS money is available to be used without limit?

Only a slight difference, but it is different.

[Michael Devault]

Earl, you are correct, but this "two year rule" applies only to profit sharing plans. It is not applicable to other types of defined contribution plans.

Thanks for the clarification!