Free Policy Review & Forensic Analysis

Life Insurance
Summary Sheet

Life Insurance
Underwriting Form

Life Insurance Underwriting Process

Variable Rescue

Corporate Issues

FAS 150

Profit Sharing Plans

Pensions and 412(i)'s

LIFE INSURANCE HOMEPAGE

Pensions and 412(i)'s

The following is a brief synopsis of 412(i) pension plans. Upon receipt of a full employer census which includes name, date of hire, birthdate, salary and bonus. I can have prepared a formal presentation. Most 412(i) plan prospects meet one of the following criteria:

• Very small businesses whose
owner is age 45+
• No more than three
other employees per key participant
• S Corporation owners with
modest W2 salaries
• Sole proprietors or “moonlighters”
412(i) plans that offer your client the following advantages:
• Maximum current tax deductible contribution
• Easily understood benefits (the contract cash value)
• No complex funding limits
• No actuarial certification
• Substantial administrative cost savings
• Significant pre-tax life insurance benefits

A 412(i) plan is simply another form of defined benefit plan. A plan document will specify a known retirement benefit and insurance contracts are used to guarantee that the monies will be there at normal retirement age. The required premium is the amount necessary to fund the benefit, on a level basis, using only the contractual guarantees of the insurance contracts. As these guarantees are often more conservative than either current investment or permissible rates, the contributions required to fund a 412(i) plan can be far greater than any other retirement plan for the mature business owner.

Dividends earned by the life insurance policies or any interest declared above the guaranteed rate simply reduce future contributions. Thus, if all else remains unchanged, a 412(i) plan will front-load the tax deductible contribution to the first several plan years. Of course, benefit limits and increased salaries due to inflation may exert some upward pressure on future contributions, allowing for sizable and predictable funding. Because the benefit is guaranteed by the insurance contracts and funding is easy to determine, a 412(i) plan can never become over-funded, nor under-funded, problems that may plague some small business defined benefit plans.

A traditionally defined benefit plan may be headed for the same destination (the promised retirement benefit) but it gets there in a different way. Complex funding limits often decrease the amount that can be deducted in the early plan years. As the plan may be invested in a wide array of financial products (including life insurance), future contributions may vary widely with actual investment experience.
A sample 412(i) comparison plan is listed below: