Is Life Insurance Value reportable as a Plan asset on Form 5500 Schedule H?

Hi all,

CPA here working on a Form 5500 audit (new account for us).

The Plan is a defined contribution profit sharing plan that owns four life insurance policies with a total cash surrender value that comprises ~40% of plan assets. Are these contracts required to be reported on Form 5500 at cash value?

I am being told by the Plan's third party administrator that they have never been reported as Plan assets because Form 5500 Schedule H Part I it states: "Do not enter the value of that portion of an insurance contract which guarantees, during this plan year, to pay a specific dollar benefit at a future date.".

I am hoping to get some insight and/or pointed to some guidance as I am not too familiar with qualified plans that offer life insurance. I have had a few in the past where the value has been reported but the value was not significant to the plan, so it was never a sticking point with respect to our report.

Any help would be greatly appreciated!

I believe 100% that they should be reported.  The operative words are "guarantees...to pay a specific dollar benefit at a future date."  They don't!  I believe this section is referring to annuities that are purchased to provide specific benefits (and/or maybe insurance policies in DBs fully funded with insurance).

I've seen otherwise very knowledgeable TPAs exclude them (you have to consider the premiums as "expenses" which I find ridiculous) so I guess you could say there are differing viewpoints, although I'd have to say those other viewpoints are wrong. 

Thanks for your input!

This is a debate that goes back at least 30 years.  The form instructions are clear for unallocated contracts and contracts that guarantee a specific benefit.  But as Bird notes this is not what most policies do, and on all these other policies the instructions are silent.

I don't really care if they have to be reported or not, I would just like DOL to state whichever it wants clearly in the instructions, so we can put this to bed and argue about other stuff, like amending safe harbor plans! ?

2 hours ago, Bird said:

I believe this section is referring to annuities that are purchased to provide specific benefits (and/or maybe insurance policies in DBs fully funded with insurance).

I think Bird is correct, only paid up allocated annuity contracts are excluded.

6 hours ago, letsgoisles89 said:

Hi all,

CPA here working on a Form 5500 audit (new account for us).

The Plan is a defined contribution profit sharing plan that owns four life insurance policies with a total cash surrender value that comprises ~40% of plan assets. Are these contracts required to be reported on Form 5500 at cash value?

I am being told by the Plan's third party administrator that they have never been reported as Plan assets because Form 5500 Schedule H Part I it states: "Do not enter the value of that portion of an insurance contract which guarantees, during this plan year, to pay a specific dollar benefit at a future date.".

I am hoping to get some insight and/or pointed to some guidance as I am not too familiar with qualified plans that offer life insurance. I have had a few in the past where the value has been reported but the value was not significant to the plan, so it was never a sticking point with respect to our report.

Any help would be greatly appreciated!

 

 

Sorry, but there is no question here: they must be reported.  I remember when that exclusion was written; it was for GUARANTEES (that is: annuities), not life insurance.  PERIOD.  A life insurance contract DOES NOT guarantee to pay a specific BENEFIT (RETIREMENT BENEFIT) at a future date.  Besides, from a logical standpoint there is a reason why they specifically excluded REAL ANNUITIES and that logic does not apply to a life insurance contract.