Life Insurance Limit in DB Plan

[Dougsbpc]

Administer a 1 participant DB plan. Sent to us by an insurance agent.

When the plan was established 10 years ago, the life insurance was exactly 100 times the projected benefit. The client still wants to keep the plan but does not want to fund as much. Dropping the benefit formula will make the insurance more than 100 times the projected benefit.

What happens if the plan were audited and it was determined that the life insurance upon purchase and for 10 following years met the 100 X rule but now does not?

Thanks.

[david rigby]

Drop the agent?

[Bill Presson]

Surrender the excess insurance. 

[ErnieG]

As Bill points out the excess must be surrendered to maintain the "incidental benefit" and the terms of the Plan.  Any excess cash value that would also be surrendered along with the reduction in death benefit would be earnings to the Plan.