DB plan with life insurance - funding related

Hi

DB plan with whole life insurance. Calendar plan

Insurance contract/effective May 2022 and with 30k annual premium, no other illustration was provided.

In December found out that premium payments were being made monthly 2.5k/month so during calendar 2022, 8 payments were made for a total of 20k, all from the corporation.

I have always used premiums paid only during the plan year but now the agent is pushing me to use 4 additional payments made/to be made in 2023 so that the total of 30k is applied to 2022.

I understand that they are contributions to be discounted to val date but my concern is the valuation of the CV as of the val date - EOY val.

I have the 12/31/2022 CV from the insurance company and did the RP 2005-25 calculation. No issue if I was using what was paid in 2022 only.

How do you incorporate the payments made in 2023 to 12/31/2022 val date and determine what the 12/31/2022 CV would be under RP 2005-25?

As they are planning to make the minimum required contribution, a proper determination of all assets is imperative.

Hope my question makes sense.

Thanks

How do you as the actuary define the MRC?  Whether you treat them as receivable or discounted-paid is going to have a negligible effect, but if you're concerned then take the more conservative result and stick to it.  The insurance agent doesn't have a stake here, and it sounds like the client will recognize 12 months premiums for deductibility regardless.

Hi Nate

My concern/question is on how to determine the CV as of 12/31/2022 if I use premiums paid after year end. This is what defines the MRC and it could be off in the thousands.

Most conservative approach is to stick to what happened during 2022.

I agree that nobody dictates what happens actuarially other than the actuary. But sometimes dealing with agents can be very unpleasant especially if they are trying to cover up their screw ups.

3 hours ago, Jakyasar said:

I agree that nobody dictates what happens actuarially other than the actuary. But sometimes dealing with agents can be very unpleasant especially if they are trying to cover up their screw ups.

The best part about agents/advisors is that to them you are a math wizard and make calculations that they can't begin to comprehend!!  If you want to use 12/31 actual, go ahead, then stick in the development of the future premiums to satisfy the agent, and finally build-out an offset to take the whole system back to the 12 actual that you want to use in the first place. 3-card Monte with math!

Just for the fun of it, let's do some role-playing:  Has anyone discussed with the plan sponsor why there is whole life insurance in a qualified plan?  The audience here does not need to know, but the sponsor should know the limited circumstances under which such insurance is useful in a plan.  Hint: "the agent (brother-in-law?) recommends it" is not a valid reason.

I once knew an agent with his famous quote "any plan without insurance is not a kosher plan"

Another actuary said "you can have insurance in your plan or you can have me as an actuary but not both".

What we educate the client on and what the agent does are two different things. All depends on the client, whom they will believe. As a plan TPA, there is only so much we can do.

By the way, I hate insurance in any pension plan, nothing but trouble. However, I have a write up that I provide to the agents/clients, what they do with it is their problem. I just want to make sure no incidental benefits are violated.

Anyway, I put my foot down and said as of 12/31 or goodbye. I am certainly not allowing an agent dictating how to administer the db plan nor changing the method I work with for many years.

Will see.

Thank you for your comments, somewhat funny though.