Abusive Insurance, Welfare Benefit, and Retirement: Retirement Plan & 419 Welfare Benefit Plan Abusive

Abusive Insurance, Welfare Benefit, and Retirement: Retirement Plan & 419 Welfare Benefit Plan Abusive...: 14 D. 412(i) Retirement Plan & 419 Welfare Benefit Plan Abusive Tax-Shelter Litigation There has been much litigation arising out of ...

FOR BUSINESS OWNERS AND THEIR ADVISORS

Questions and Answers about 412(i) Fully Insured Defined Benefit Plans

Updated for the Pension Protection Act of 2006
Introduction

The Pension Protection Act of 2006 enacted on August 17, 2006 moved the provisions of Section 412(i) of the Internal Revenue Code to new Code Section 412(e)(3). But for historical context, we will continue to refer to these plans as 412(i) plans.

Background

What is a 412(i) defined benefit pension plan? A 412(i) defined benefit pension plan, referred to in IRS regulations as an "insurance contract plan", is the only defined benefit plan that is exempt from the minimum funding requirements of Section 412 of the Internal Revenue Code. This type of plan, therefore, enjoys certain advantages over the traditional defined benefit plan and is worth exploring if you are the owner of a small business.

These advantages create a plan that, compared to a traditional defined benefit plan, will produce:

• Larger initial deductions;
• More stability in the contribution level;
• Simpler plan administration; and
• A secure promise of future benefits guaranteed by an insurance company.

What are the advantages of a 412(i) insurance contract plan o