Insurance in Defined Benefit Plans

The taxable cost is the net amount at risk (death benefit minus cash value) per $1,000 times the Table 2001 rate for the participant's attained age. The PS 58 Costs article has the full method and the single and multiple participant calculators.

Fair market value is the greater of (A) interpolated terminal reserve plus unearned premiums and a pro rata estimate of dividends, and (B) the PERC amount times the Average Surrender Factor (1.00 for §§ 79, 83 and 402(b); for qualified plans with explicit surrender charges, the 10-year average of max(0.70, cash surrender value / PERC), using projected values after the first year and counting a surrender charge only if it was contractually specified at issue as nonincreasing percentages or amounts). Dividends held on deposit are taxed in addition to the fair market value. A loan extinguished on the transfer does not reduce the amount taken into account: the full debt-free fair market value is included, and for a qualified-plan participant loan the offset is a plan loan offset (§ 4.02).

Rev. Rul. 74-307 treats pension plan death benefits as incidental if (1) less than 50% of the employer contribution credited to the participant's account buys ordinary life insurance, or (2) the total preretirement death benefit equals the greater of ordinary life proceeds of 100 times the anticipated monthly retirement benefit or the policy reserve plus the auxiliary fund account (the Rev. Rul. 68-453 test, which it clarified and modified). For DB plans, Pub. 6392 applies these through the theoretical contribution and a separate 100-times test. Rev. Rul. 85-15 requires the qualified preretirement survivor annuity to be counted toward the incidental limit.

The IRS sample adoption agreement options define the theoretical contribution (individual level premium from entry age to normal retirement age for the straight life benefit, current salary), the theoretical ILP reserve, and the incidental reserve (face + theoretical ILP reserve - PV of QPSA - cash value). Pub. 6392 states the same 66% (whole life) and 33% (term or universal life) limits.

Transactions the same as, or substantially similar to, Situation 2 are listed transactions under § 1.6011-4(b)(2), §§ 301.6111-2(b)(2) and 301.6112-1(b)(2), effective February 13, 2004, "provided that the employer has deducted amounts used to pay premiums on a life insurance contract for a participant with a death benefit under the contract that exceeds the participant's death benefit under the plan by more than $100,000." In Situation 2 the excess proceeds go back to the plan to pay other participants' premiums. The ruling also warns of the then-current § 6707 (tax shelter registration) and § 6708 (list maintenance) penalties on promoters and of § 6662 penalties on participants. The current material-advisor rules apply to aid or advice given after October 22, 2004.

Also listed under Revenue Rulings.

The IRS list describes "certain arrangements in which an employer deducts contributions to a qualified pension plan for premiums on life insurance contracts that provide for death benefits in excess of the participant's death benefit, where under the terms of the plan, the balance of the death benefit proceeds revert to the plan as a return on investment" (identified February 13, 2004). Notice 2009-59 repeats it as item (27). It is the only listed transaction that involves both a qualified plan and life insurance; other listed transactions involving qualified plans or IRAs but no insurance (Rev. Rul. 90-105, Rev. Rul. 2004-4, Notice 2004-8, Notice 2004-30) and the welfare benefit fund listings (Notice 95-34, Notice 2003-24, Notice 2007-83) are outside this section.

Plan contributions buy a specially designed contract whose cash surrender value is temporarily depressed well below the premiums paid. The contract is distributed or sold to the employee at that depressed value, and the value then increases significantly after the transfer; other designs use narrow exchange rights or other non-guaranteed elements. A contract transferred from an employer or qualified plan must be taxed at its full fair market value. The IRS lists this on its EP abusive transactions page, which makes it an "abusive tax avoidance transaction" for EPCRS (Rev. Proc. 2021-30, § 4.12(2)). It is not separately designated a listed transaction; the official listing cites its guidance only as "see also" under Rev. Rul. 2004-20. The EP page notes that some high-premium arrangements (Rev. Rul. 2004-20, Situation 1) are also springing cash value arrangements. A springing cash value plan is a listed transaction only if it also meets the Situation 2 test (a death benefit more than $100,000 above the plan death benefit, with the premiums deducted).

Safe-harbor formulas for the fair market value of a life insurance contract distributed or sold from a qualified plan (and for §§ 79 and 83): the greater of (A) the interpolated terminal reserve plus unearned premiums and a pro rata estimate of dividends, and (B) the PERC amount (premiums, plus dividends applied to buy paid-up insurance, plus other amounts credited, less reasonable mortality and other charges and prior distributions) times the Average Surrender Factor. For a distribution or sale from a qualified plan of a contract with explicit surrender charges, that factor is a 10-year average of yearly factors, each at least 0.70; for §§ 79, 83 and 402(b), and for contracts without explicit surrender charges, it is 1.00 (no reduction for surrender charges). Cash surrender value alone is not fair market value. Rev. Proc. 2004-16 (the February 13, 2004 interim rule) can still be relied on for periods from February 13, 2004 through April 30, 2005.

Also listed under Revenue Procedures, Notices and Releases.

A distributed life insurance contract is taken into account at fair market value, which includes "the policy cash value and all other rights under such contract (including any supplemental agreements thereto and whether or not guaranteed)" (§ 1.402(a)-1(a)(1)(iii)). When the plan sells a contract to a participant for less than fair market value, the excess is a distribution for all Code purposes for transfers on or after August 29, 2005; for earlier transfers it is gross income under § 61. The fair market value standard was proposed on February 13, 2004 (69 FR 7384), and those proposed regulations are cited in the official Rev. Rul. 2004-20 listing.

Also listed under Treasury Regulations.

A right to buy a contract from the plan is a benefit, right or feature that must be available to participants on a nondiscriminatory basis under § 401(a)(4). Where HCEs can buy their contracts at cash surrender value and the NHCEs' rights are not of inherently equal or greater value, the plan fails § 401(a)(4); differences in the contracts (cash value growth, exchange features) create different rights. Cited as "see also" in the official Rev. Rul. 2004-20 listing.

Also listed under Revenue Rulings.

A plan holding contracts that provide benefits at normal retirement age above the plan's benefits cannot be a § 412(i) plan; it is subject to § 412 funding and the generally applicable § 404 deduction rules. The EP page identifies high-premium plans of this kind as abusive and notes some are also springing cash value arrangements. Situation 1 is not within the listing, which covers Situation 2 only.

IR-2004-21 announced the February 13, 2004 package (proposed § 402 regulations, Rev. Proc. 2004-16, Rev. Ruls. 2004-20 and 2004-21) aimed at springing cash value policies, excess insurance deductions and discriminatory purchase rights. The Summer 2007 EP News article covers the option the IRS permits in certain circumstances to treat a purported § 412(i) plan as a § 412 plan from inception, using retroactive funding standard account calculations by an enrolled actuary. Plan provisions stay unchanged (except § 412(c)(8) amendments). Contracts are valued at fair market value (Rev. Proc. 2005-25, § 3.02 is one acceptable method; Rev. Proc. 2006-13 for annuities). Only the term cost of insurance, on a face amount no greater than the plan's death benefit, may be included in normal cost.

Also listed under Revenue Procedures, Notices and Releases and under Other IRS Subregulatory Guidance.

A taxpayer participates in a listed transaction if its return reflects the tax consequences described in the listing guidance, or if it knows or has reason to know its tax benefits derive from them. Form 8886 is attached to the return (including amended returns) for every year of participation, with a copy to the Office of Tax Shelter Analysis the first time. A partnership, S corporation or trust attaches it to its own return. If a return reflecting the transaction was filed before the transaction became listed and the assessment period was still open, disclosure to OTSA is due within 90 calendar days after the listing date. For Rev. Rul. 2004-20 (listed February 13, 2004) that window closed in mid-May 2004 under the current text of the regulation, so a disclosure filed now is late.

Also listed under Treasury Regulations.

Attach to the income tax or information return for each year of participation, and send an exact copy of the first Form 8886 to OTSA (Mail Stop 4915, Ogden, UT 84201, or fax 844-253-2553). A partner, S corporation shareholder or trust beneficiary who receives a timely Schedule K-1 less than 10 calendar days before the return due date (including extensions) is not late if Form 8886 is filed with OTSA within 60 days after that due date. The instructions summarize the § 6707A and § 6662A penalties.

A material advisor (anyone who gives material aid or advice on the transaction and earns fees above the threshold) files Form 8918 with OTSA by the last day of the month after the calendar quarter in which it became a material advisor, and gives the reportable transaction number to its clients. For listed transactions the gross income thresholds drop from $50,000 to $10,000 (when substantially all the tax benefits go to natural persons, looking through partnerships, S corporations and trusts) and from $250,000 to $25,000 (all other cases). Under § 6112 the advisor keeps a list of participants for 7 years and produces it on IRS request.

A § 401(a) plan is a "plan entity". The entity-level tax does not apply to plan entities (§ 53.4965-7(a)(1)); instead the entity manager, meaning the person who approves or otherwise causes the plan to be a party (a trustee or committee member who votes for it, or the participant in a fully self-directed plan), owes $20,000 for each approval if that person knew or had reason to know the transaction was a prohibited tax shelter transaction (§ 4965(a)(2), (b)(2), (d)(2); § 53.4965-5(b)). A plan is a "party" if it facilitates the transaction by reason of its tax-exempt status or is identified as a party in published guidance (§ 53.4965-4). The tax is imposed for the manager's taxable year in which the plan enters into the transaction (§ 53.4965-7(b)(2)), and the IRS will not assert it if the plan entered into the transaction before May 17, 2006 (§ 53.4965-9(c)(2)).

Rev. Rul. 2004-20 does not identify the plan as a party, so application depends on the facilitation test. Arguably the plan facilitates the transaction because the excess coverage and reverting proceeds accumulate inside a tax-exempt trust; on the other view, the employer's deduction does not depend on the trust's exemption. No published guidance resolves the point.

If a qualified plan is a party to a prohibited tax shelter transaction, the entity manager (not the plan) files Form 8886-T once per transaction, generally by May 15 of the year after the plan became a party, with the IRS in Ogden. The form is open to public inspection. Failure to file costs the entity manager $100 a day, up to $50,000 per disclosure, plus $100 a day up to $10,000 after an IRS written demand (§ 6652(c)(3)). These amounts are adjusted for inflation each year by revenue procedure; for disclosures required to be filed in 2027 they are $130 a day up to $66,500, and $130 a day up to $13,000 after a demand (Rev. Proc. 2025-32, § 4.53). The 2019 Form 8886-T instructions show older figures.

The entity manager reports and pays the $20,000-per-approval § 4965(a)(2) tax on Form 5330, due by the 15th day of the 5th month after the close of the entity manager's tax year in which the plan became a party to the transaction.

§ 6707A: 75% of the tax decrease from the transaction, but at least $10,000 ($5,000 for a natural person) and, for a listed transaction, no more than $200,000 ($100,000 for a natural person) per failure; the IRS cannot rescind it for a listed transaction. § 6662A: 20% of the reportable transaction understatement, 30% if the transaction was not adequately disclosed (and the reasonable cause defense is then unavailable).

Also listed under Internal Revenue Code.

§ 6707: for failing to file a complete, timely Form 8918 on a listed transaction, the greater of $200,000 or 50% of the advisor's gross income from the advice (75% if intentional). § 6708: $10,000 for each day after the 20th business day following an IRS written request that the investor list is not produced, unless due to reasonable cause.

Applies to anyone who organizes or sells a plan or arrangement and makes or furnishes a statement about its tax benefits they know or have reason to know is false or fraudulent, or a gross valuation overstatement. The penalty is $1,000 per activity (or 100% of the gross income from it, if less); for a false or fraudulent statement it is 50% of the gross income from the activity.

If a taxpayer fails to disclose a listed transaction as required by § 6011, the period for assessing tax on that transaction does not end before 1 year after the earlier of the date the IRS receives the information or the date a material advisor furnishes the § 6112 list for that taxpayer.

An "abusive tax avoidance transaction" includes any listed transaction under § 1.6011-4(b)(2). SCP is not available for failures directly or indirectly related to it. A VCP submission is coordinated with other IRS personnel; if the failures relate to the transaction, the IRS closes the submission without a compliance statement and refers the case for examination. A compliance statement can never be relied on to show the plan or sponsor was not a party.

The taxpayers, shareholders of the S corporation sponsor, stipulated that their 2004 § 412(i) arrangement was a Rev. Rul. 2004-20 listed transaction and that they did not attach Form 8886 to their original return. The Tax Court sustained the 30% § 6662A penalty and held that unawareness of the disclosure rule did not meet the § 6664(d) reasonable cause conditions. A Form 8886 attached to a later amended return did not cure the failure.

Also listed under Court Cases. Linked text is an unofficial reporter.

Qualification requirements. A pension plan may provide life insurance only as an incidental benefit (Treas. Reg. § 1.401-1(b)(1)(i)). The § 401(a)(11) qualified preretirement survivor annuity counts toward the incidental limit (Rev. Rul. 85-15), and the § 401(h) subordination test requires that cumulative contributions for retiree medical benefits plus life insurance protection (the death benefit in excess of the reserve), made after medical benefits were added, not exceed 25% of cumulative contributions other than for past service credits (Treas. Reg. § 1.401-14(c)(1)(i)).

Exempts insurance contract plans from the minimum funding rules. A § 412(e)(3) plan must be funded exclusively with individual insurance or annuity contracts (or group contracts with the same characteristics under the regulations) with level annual premiums running from the date the individual became a participant (or the date a benefit increase takes effect) to no later than retirement age, plan benefits must equal contract benefits at normal retirement age and be guaranteed by a licensed insurer, premiums must be paid before lapse, and no security interests or policy loans may exist during the plan year. Formerly § 412(i); relocated by PPA '06 for plan years beginning after 2007.

A plan funded exclusively by insurance contracts that meets the level-premium condition and the benefit-equality-and-insurer-guarantee condition of § 412(e)(3)(B) and (C) satisfies the § 411(b)(1) accrual rules if the accrued benefit is not less than the cash surrender value the contracts would have if the remaining § 412(e)(3) conditions were met (described in Rev. Rul. 2004-20).

Deductible contributions and trust income applied to buy life insurance protection payable directly or indirectly to a participant or beneficiary are includible in the participant's income when applied. Amounts so taxed become investment in the contract only for benefits under the contract that provided the protection (Treas. Reg. § 1.72-16(b)(4); Rev. Rul. 67-336). Amounts taxed to an owner-employee never become investment in the contract (§ 1.72-16(b)(4); § 72(m)(2)).

Death proceeds are excluded from income. For a contract held by a qualified plan, Treas. Reg. § 1.72-16(c)(2)(ii) limits the exclusion to the amount at risk: the proceeds in excess of the cash value immediately before death. The cash value portion is a plan distribution taxed to the beneficiary under § 72, and the PS 58 / Table 2001 costs taxed to the participant are recovered as basis against the cash-value portion (§ 1.72-16(b)(4); (c)(3) Example 1). If the participant neither paid the cost of the insurance nor was taxed on it, no part of the proceeds is excludable (§ 1.72-16(c)(4)). Under § 1.72-16(b)(6), no insurance cost is taxed under paragraph (b) if the trust may retain any part of the proceeds, so (c)(4) can then deny the exclusion; how this applies when only the excess over the plan death benefit reverts to the plan (Rev. Rul. 2004-20 Situation 2) is unsettled. A death benefit under an annuity contract is not life insurance and is not excludable (§ 1.72-16(c)(2)(i)). The regulation's examples also apply the $5,000 employee death benefit exclusion of former § 101(b), which was repealed by Pub. L. 104-188, § 1402(a) (Aug. 20, 1996). When a plan sells a policy, the transfer-for-value rule of § 101(a)(2) can limit the exclusion; a transfer to the insured, the insured's partner or partnership, or a corporation in which the insured is a shareholder or officer is excepted (§ 101(a)(2)(B)).

Amounts distributed from a qualified trust are taxable when distributed. A distributed life insurance contract is taken into income at fair market value, except to the extent it is converted within 60 days into a contract with no § 101(a)-excludable death benefit or rolled over under § 402(c). A sale to a participant for less than fair market value is a distribution of the excess (Treas. Reg. § 1.402(a)-1(a)(1)(iii) and (a)(2), as amended by T.D. 9223). Rev. Proc. 2005-25 provides safe harbors for fair market value.

Deduction limits for DB contributions; for single-employer plans the limit has been § 404(o) since PPA '06. Rev. Rul. 2004-20, decided under the earlier normal-cost limits, holds that premiums for life insurance in excess of the plan's death benefit are not currently deductible; they are carried over under § 404(a)(1)(E) and deducted in later years. The IRS 412(e)(3) issue snapshot continues to apply this result.

10% excise tax on nondeductible contributions, applied each year until the excess is eliminated unless the § 4972(c)(7) election applies. The IRS 412(e)(3) issue snapshot applies it to premiums that Rev. Rul. 2004-20 makes nondeductible.

The funding target is the present value of all benefits accrued or earned, which includes ancillary death benefits. Plan assets are valued at fair market value, or by averaging over no more than 24 months (adjusted for contributions, distributions and expected earnings capped at the third segment rate) within 90% to 110% of fair market value. Insurance contracts are valued using the Subchapter D fair-market-value guidance (Treas. Reg. § 1.430(g)-1(c)(1)(ii); see Rev. Proc. 2005-25). Section 430 does not apply to a plan that meets § 412(e)(3). The insurer's reserve is evidence of a policy's value, not a substitute for the § 430 liability. See Treas. Reg. §§ 1.430(d)-1 and 1.430(g)-1.

Spousal survivor-annuity rights apply to the pension benefit regardless of who is named as beneficiary of a plan-held policy. Waivers need the spouse's written, witnessed consent. Whether an ancillary insurance benefit itself must go to the spouse depends on the plan terms and how it interacts with the QPSA.

For employer-owned contracts issued after Aug. 17, 2006 (other than § 1035 exchanges of earlier contracts without a material change), death proceeds are taxable above premiums and other amounts paid unless the notice-and-consent requirement is met and an exception applies, and § 6039I requires annual reporting (Form 8925). These rules apply to insurance the employer owns outside the plan; that insurance is not a plan asset and should not be counted in plan funding.

Relevant because T.D. 9223 amended § 1.79-1(d)(3) so that the deemed death benefit formula for permanent benefits uses the greater of the net level premium reserve or the policy's fair market value, and Rev. Proc. 2005-25 safe harbors apply to that value as they do to contracts distributed from qualified plans. The amount included in income is still the formula cost, not the policy's full value.

Statutory definition of a life insurance contract. Section 7702(f)(2)(A) defines cash surrender value without regard to surrender charges. In Matthies (a sale of a policy from a profit-sharing plan before T.D. 9223), the Tax Court read the "entire cash value" standard of former § 1.402(a)-1(a)(2) consistently with § 72(e)(3)(A)(i) and § 7702(f)(2)(A), allowing no reduction for surrender charges.

Excise tax on sales, exchanges and other transactions between a plan and disqualified persons. Applies to a plan's sale of a policy to a participant or employer (unless PTE 92-6 is met) and to an employer's in-kind contribution of a policy to a DB plan (Keystone; PTE 92-5).

Penalties for failing to disclose a listed transaction and accuracy-related penalties on reportable transaction understatements. Arrangements the same as or substantially similar to Rev. Rul. 2004-20 Situation 2 (excess insurance in a DB plan) are listed transactions from Feb. 13, 2004, if the employer deducted premiums on a policy whose death benefit exceeds the participant's plan death benefit by more than $100,000; see Brennan v. Commissioner, T.C. Memo. 2011-276 (§ 6662A penalty).

Defines who is a fiduciary. Selecting an annuity provider for a benefit distribution or plan termination is a fiduciary act (Interpretive Bulletin 95-1).

To the extent a policy provides benefits whose amount is guaranteed by the insurer (a guaranteed benefit policy, which excludes any separate account other than surplus), plan assets include the policy but do not, solely by reason of its issuance, include the insurer's assets.

The trust requirement does not apply to plan assets consisting of insurance contracts or policies issued by a state-qualified insurer, or to assets held by such an insurer (applied in DOL Information Letter 02-15-2001).

The fiduciary standard governing purchases of insurance and annuity contracts and selection of annuity providers (Bussian v. RJR Nabisco; IB 95-1).

Title I counterparts to Code § 4975, and the authority under which the insurance class exemptions (PTEs 92-5, 92-6, 84-24, 79-41, 79-60, 95-60, 90-1) were granted.

In a standard termination, plan assets are distributed by purchasing irrevocable commitments from an insurer or in another permitted form; details in 29 CFR § 4041.28.

A pension plan must be primarily for retirement benefits but may provide incidental death benefits through insurance or otherwise. This is the source of the incidental benefit rules developed in the Revenue Rulings below.

Requirements for insurance contract plans: funding exclusively by insurance or annuity contracts; level annual (or more frequent) premiums to normal retirement age, which may be set out in a "separate agreement" with the insurer (§ 1.412(i)-1(b)(2)(ii)); plan benefits equal to contract benefits at normal retirement age; an insurer guarantee to the extent premiums are paid; no lapse; and no security interests or policy loans during the plan year ((b)(2)(i)-(vii)). The regulation still refers to former §§ 412(h)(2) and 412(i) and was not updated after PPA '06; it is generally applied to § 412(e)(3) plans.

When deductible contributions or trust earnings buy life insurance whose proceeds are payable to the participant or the participant's beneficiary, the cost of current life insurance protection is taxed to the participant for the year it is paid (§ 1.72-16(b)(1)-(3)). The rule does not apply if the trust may retain any part of the proceeds ((b)(6)). Under (b)(4) the taxed cost is basis only in the contract providing the protection, and never for an owner-employee. Paragraph (c) governs death proceeds. Detailed coverage is in the PS 58 Costs article.

A distributed retirement income, endowment or other life insurance contract is taken into account at fair market value, which includes the policy cash value and all other rights under the contract, including supplemental agreements, whether or not guaranteed (§ 1.402(a)-1(a)(1)(iii)). It is not currently taxable to the extent that within 60 days it is irrevocably converted into a contract with no § 101(a) death benefit, or it is rolled over ((a)(2)). For transfers on or after August 29, 2005, a sale to a participant or beneficiary for less than FMV is treated as a distribution of the difference for all purposes; for earlier transfers the difference is gross income under § 61 and, for insurance contracts, is not a distribution for subchapter D purposes. The cash surrender value of a distributed nontransferable annuity contract is not income until surrender; a transferable annuity contract must be made nontransferable within 60 days, or its FMV is taxed.

Final regulations (effective August 29, 2005) amending §§ 1.402(a)-1, 1.79-1(d) and 1.83-3(e) to require fair market value rather than cash value. They apply to distributions of life insurance contracts, § 79 permanent benefits and § 83 transfers on or after February 13, 2004 (the § 83 rule excludes split-dollar arrangements entered into by September 17, 2003 and not materially modified). A plan's sale for less than FMV is treated as a distribution only for transfers on or after August 29, 2005; earlier bargain elements are § 61 income. The preamble traces Notice 89-25, Rev. Proc. 2004-16 and Rev. Proc. 2005-25. Proposed at 69 FR 7384 (Feb. 13, 2004).

Companion amendments in T.D. 9223: § 1.79-1(d)(3) now uses the greater of the net level premium reserve or the policy's fair market value in the deemed death benefit formula for permanent benefits; § 1.83-3(e) treats the policy cash value and all other rights (other than current life insurance protection) as property for § 83, except for split-dollar arrangements entered into by September 17, 2003 and not materially modified.

A right to purchase a life insurance contract from the plan is an optional form of benefit to the extent it is a distribution alternative for the accrued benefit, and otherwise an "other right or feature". Either way it must be currently and effectively available on a nondiscriminatory basis. Differences in the contracts (for example, cash value growth or exchange features) create separate rights even when the purchase terms are the same (Rev. Rul. 2004-21; § 1.401(a)(4)-4(b), (c), (e)).

Lists ancillary life insurance protection among benefits that are not protected by the anti-cutback rule, so it can generally be reduced or eliminated prospectively. A right to buy a policy from the plan may be a protected optional form of benefit to the extent it operates as a distribution alternative for the accrued benefit. This is an inference from Rev. Rul. 2004-21, which characterizes the right only for § 401(a)(4) purposes and does not address § 411(d)(6), read with § 1.411(d)-4, A-1(a)(3).

Contributions for disability pensions, insurance or survivorship benefits that are incidental and directly related to the retirement benefits are deductible under § 404(a)(1) (trusteed plans) or § 404(a)(2) (annuity plans) along with the retirement benefits, cross-referencing § 1.72-16(b)(2) for the employee's taxation of the insurance cost.

The funding target and target normal cost include all unpaid benefits earned or accrued, including ancillary benefits (within the meaning of § 1.411(d)-3(g)) such as insured death benefits. Section 1.430(g)-1 governs the fair market value and averaging methods used to value plan assets. Under § 1.430(g)-1(c)(1)(ii), subchapter D guidance on valuing insurance contracts (such as Rev. Proc. 2005-25) applies in determining the fair market value of plan-held contracts.

Cross-referenced in § 1.402(a)-1(a)(2). Contracts issued after 1962 receive annuity treatment only if nontransferable when held by anyone other than the trustee (§ 1.401-9(b)(1)); payments under a distributed contract must continue to satisfy the QJSA/QPSA (§ 1.401(a)-20, A-2), required minimum distribution (§ 1.401(a)(9)-6(d), formerly Q&A-4 before T.D. 10001 (2024)) and direct rollover (§ 1.401(a)(31)-1, Q&A-17) rules.

Disclosure regime for reportable transactions, including listed transactions (§ 1.6011-4(b)(2)). Rev. Rul. 2004-20 identifies arrangements the same as or substantially similar to its Situation 2 (excess death benefit of more than $100,000) as listed transactions. EPCRS (Rev. Proc. 2021-30, § 4.12(2)) borrows the § 1.6011-4(b)(2) definition and adds transactions on the IRS EP abusive transactions page to define an "abusive tax avoidance transaction".

Death benefits in a pension plan of any type are incidental if either (1) less than 50% of the employer contribution credited to each participant's account buys ordinary life insurance, even if the death benefit is the face amount plus the account balance, or (2) the death benefit before normal retirement is the greater of 100 times the anticipated monthly benefit or the policy reserve plus the auxiliary fund account (Rev. Rul. 68-453). Clarifies and modifies Rev. Ruls. 68-453 and 73-501. The ruling is written for plans with participant accounts. For DB plans, Pub. 6392 applies it through a "theoretical contribution", with ordinary life premiums capped at 66% (33% for term or universal life) of that contribution.

Issued under § 165(a) of the 1939 Code. A profit-sharing trust's investment in ordinary life insurance on each insurable participant is incidental, and does not disqualify the plan, if (1) aggregate premiums for each participant are less than one-half of the aggregate contributions allocated to the participant at any particular time, and (2) the plan requires the trustee to convert the entire value of the contract at or before retirement to provide periodic income, so that no part of it continues life insurance protection after retirement. In the ruling, less than half of each annual allocation bought the policy, and one year before normal retirement the trustee used the participant's pooled account to convert it to an income contract. This is the origin of the 50% ordinary life test that Rev. Rul. 74-307 extended to pension plans. Rev. Rul. 57-213 (under § 401(a) of the 1954 Code) amplified it: the limit is measured against contributions and forfeitures, not the trust fund, so premiums for a participant, added to contributions and forfeitures previously used for that participant's ordinary life insurance, must stay below one-half of the total contributions and forfeitures allocated to the participant's account. Earnings, capital gains and losses are not counted in that total, though trust funds attributable to them may pay premiums within the limit. Using 50% or more of participants' accumulated credits would make the plan primarily a life insurance plan. Insurance may continue after normal retirement date while a participant who elects not to retire keeps working, if the same limit is applied. Rev. Rul. 65-178, Part 2(n)(2), restates the rule for trust funds accumulated for less than 2 years, citing Rev. Rul. 54-51 "as amplified by" Rev. Ruls. 57-213 and 60-84: at or before retirement the trustee must convert the entire value of the contract into cash or periodic income, or distribute the contract to the participant.

Full text of Rev. Ruls. 54-51 and 57-213 is reproduced in the PS 58 Costs article. Rev. Rul. 57-213 describes itself as amplifying 54-51; Schloegel v. Boswell refers to 54-51 "as modified by" 57-213.

Issued under § 165(a) of the 1939 Code. A plan that gives employees only the benefits of ordinary life insurance contracts, converted to life annuities at normal retirement date, is not a pension plan. An ordinary life contract's primary purpose is life insurance protection, and its level-premium reserve buys a relatively small annuity compared with a retirement income contract of the same face amount, so the plan is not primarily for definitely determinable retirement benefits. Distinguished from a plan that also provides incidental life insurance. Cited with Rev. Rul. 65-25 in Rev. Rul. 65-178; Rev. Rul. 81-162 (as described in Rev. Rul. 2004-20) reaches a similar result.

Full text is reproduced in the PS 58 Costs article.

A pension or profit-sharing plan covering self-employed individuals (under the Self-Employed Individuals Tax Retirement Act of 1962) does not qualify under § 401 if its only retirement benefits come from ordinary life contracts, or similar life insurance contracts whose death benefit is greater than 100 times the monthly retirement income under the contract. Applies Rev. Rul. 54-67 to self-employed plans, and uses the 100-to-1 measure of Rev. Rul. 60-83 as the line between incidental and non-incidental death benefits.

Full text is reproduced in the PS 58 Costs article.

In a split-funded plan, a death benefit equal to the greater of (a) ordinary life proceeds of 100 times the anticipated monthly normal retirement benefit or (b) the policy reserve plus the auxiliary fund is incidental, but a death benefit equal to the face amount plus the auxiliary fund account is not. Rev. Rul. 74-307 clarified and modified this: face amount plus account is incidental if less than 50% of the employer contribution credited to the participant's account buys ordinary life insurance.

Holding taken from Rev. Rul. 74-307; original text not reviewed.

Death benefits in any type of pension plan are incidental if, for each individual, their cost does not exceed 25% of the total cost; this is equivalent to the 50% ordinary life limit. Pub. 6392 also ties surviving-spouse annuity percentages to this ruling, as modified by Rev. Rul. 85-15.

Holding taken from Rev. Rul. 74-307 and IRS Pub. 6392; original text not reviewed.

A § 403(b) ruling that applies the pension plan incidental tests to a modified endowment policy with an annuity rider. It traces the 100-to-1 test (Rev. Rul. 61-121: death benefit no greater than under a typical retirement income contract paying the greater of 100 times the monthly pension or the reserve) and the 25%-of-cost test (Rev. Rul. 70-611) to Raymond J. Moore, 45 B.T.A. 1073 (1941), acq., and says these § 401(a) principles apply equally to § 403(b). The policy's death benefit was slightly larger than a typical retirement income policy's in some later years, but its net level premiums were lower at all ages on the same assumptions, so the value of the death benefit was smaller and the insurance was incidental.

A § 403(b) ruling, listed for its explanation of the § 401(a) incidental tests and the premium-comparison method. Full text is reproduced in the PS 58 Costs article.

Profit-sharing death benefits are incidental if less than 50% of the employer contribution credited to an account buys ordinary life insurance, even if the death benefit is face amount plus account. Rev. Rul. 74-307 extended the principle to all pension plans, and modified Rev. Rul. 73-501 only insofar as it referred to Rev. Rul. 68-453 (under which face amount plus account was not incidental in a pension plan).

Holding taken from Rev. Rul. 74-307; original text not reviewed.

A contributory pension plan (pension for a period certain and life thereafter) was amended to pay the beneficiary of a retired employee 50% of one year's base salary in the year before retirement (minimum $2,000, maximum $15,000); before retirement the only death benefit was a refund of the employee's contributions with 3% interest. The amendment raised plan cost by about 7%, roughly the cost of continuing the pension one year after death. Held: the plan remains qualified; this post-retirement death benefit, which costs less than 10% of the cost of the pension plan (determined without the death benefit), is incidental under § 1.401-1(b)(1)(i). The holding is tied to this benefit; the ruling does not state a general 10% rule. Rev. Rul. 56-656 (election before retirement to have all or part of the interest paid to beneficiaries after death fails § 401(a)) is distinguished. Cited in Rev. Rul. 65-178.

Full text is reproduced in the PS 58 Costs article. Rev. Rul. 56-656 has not been reviewed.

A profit-sharing plan used current employer contributions (not yet accumulated for the 2 years required by Rev. Rul. 54-231) to buy paid-up units of endowment insurance; at retirement all units paid a life annuity, and on earlier death an equivalent amount went to the beneficiary. Using trust funds for current life insurance is a distribution (§ 1.402(a)-1(a)(3)), so with current contributions the insurance must be incidental. The ruling states the 100-to-1 rule from Raymond J. Moore, 45 B.T.A. 1073 (acq.): in a level premium retirement income contract paying $10 a month at 65, a preretirement death benefit of $1,000 (or the cash value if greater) is incidental. The test looks at the approximate share of the overall cost not accumulated for deferred benefits. Paid-up endowment units fund much of the reserve at once, so the net amount at risk starts much lower than under level premiums, and its average before retirement is not significantly different from that of a level premium policy meeting the 100-to-1 rule. Held: the insurance is incidental and the plan remains qualified. Listed by the IRS (Pub. 6392, item III.f) among the authorities for incidental preretirement death benefits, and cited in Rev. Rul. 65-178 for the 100-times-monthly-annuity limit in pension and annuity plans.

Full text is reproduced in the PS 58 Costs article.

A qualified profit-sharing plan invested less than 50% of each participant's allocations in life insurance and, on termination of employment, delivered the paid-up contracts to the employee with the cash in a lump sum. Held: failing to convert the contract so that no insurance continues past retirement does not by itself disqualify the plan or trust; Rev. Rul. 54-51 and Part 2(k)(2) of Rev. Rul. 57-163 are amplified. Under § 1.402(a)-1(a)(2), the entire cash value of a distributed contract is taxable unless converted within 60 days into a contract with no § 101(a) death proceeds. If the employee does not convert it into an annuity within 60 days, the cash value plus the cash paid, to the extent it exceeds the employee's net contributions, is long-term capital gain on a lump-sum distribution (then § 402(a)(2); § 1.402(a)-1(a)(6)(i)). Rev. Rul. 65-178 cites it, with Rev. Ruls. 54-51 and 57-213, for the rule that the contract may be distributed to the participant. Listed by the IRS (Pub. 6392, item III.f) among the authorities for incidental death benefits.

Full text is reproduced in the PS 58 Costs article. The capital gain treatment of lump-sum distributions under former § 402(a)(2) has since been repealed; the qualification holding is still cited in Pub. 6392.

A contributory DB plan paid a pension to the widow (50% of the participant's anticipated retirement income, reduced if she was more than 10 years younger) and to minor children of an employee who died in service between ages 60 and 64 with at least 20 years of service, at least 15 of them credited under the plan. Treas. Reg. § 1.401-1(b)(1)(i) allows incidental death benefits, recognizing that plans are often funded with typical retirement income contracts, which pay before retirement the greater of 100 times the anticipated monthly pension or the accumulated reserve. Actuarial computations showed the value of the widow's benefit generally would not exceed the reserve under level premium funding like that of such a contract, any excess in rare cases was inconsequential, and the children's benefits could be ignored given when they were paid. Held: the death benefits are incidental. This is the "typical retirement income contract" measure for death benefits not funded with insurance, cited in Rev. Ruls. 65-178 and 74-115.

Full text is reproduced in the PS 58 Costs article.

Described in Rev. Rul. 69-421 (Appendix and Part 2(n)(1)) as concerning incidental death benefits under a money purchase pension plan and clarifying Rev. Rul. 66-143, under which a money purchase plan may, in the alternative, use the profit-sharing limit on ordinary life insurance. Listed by the IRS (Pub. 6392, DB plan deficiency checklist, item III.f) with Rev. Ruls. 60-83, 60-84, 66-143, 70-611, 74-307 and 85-15 among the authorities for incidental death benefits.

Cited from IRS Pub. 6392; original ruling not reviewed.

The qualified preretirement survivor annuity is a preretirement death benefit that must be counted in the incidental test. A plan whose only death benefit is the QPSA is incidental, and an additional death benefit is incidental only if it and the value of the QPSA together stay within one of the incidental limits, so the plan may have to offset the additional benefit by the QPSA value.

Holding taken from IRS Pub. 6392; original text not reviewed.

The IRS's 1965 compendium of plan qualification guides. Part 2(n) collects the incidental benefit rules. In an insured pension or annuity plan, life insurance is incidental if no greater than 100 times the monthly annuity, e.g. $1,000 per $10 of monthly annuity (Rev. Rul. 60-83). A preretirement widow's benefit is incidental if its value does not exceed the death benefit under a typical retirement income contract (Rev. Rul. 61-121), and a post-retirement death benefit of 50% of base salary in the year before retirement, costing under 10% of the plan cost excluding the death benefit, is incidental (Rev. Rul. 60-59). A pension plan may not provide only ordinary life contracts convertible at retirement (Rev. Ruls. 54-67, 65-25). Insurance used to reduce employer contributions is advance funding, not currently deductible (Rev. Rul. 55-748, since modified and superseded by Rev. Rul. 2004-20). Profit-sharing plans: ordinary life premiums under half of allocated contributions, with the contract converted or distributed at or before retirement (Rev. Ruls. 54-51, 57-213, 60-84), and the 25% rule for accident and health (Rev. Rul. 61-164). Other insurance provisions: dividends must reduce the deduction (2(r)); uniform cash surrender values when benefits are based on them (5(n)); trustee borrowing on contracts must not favor officers (5(q)).

The insurance provisions are reproduced in the PS 58 Costs article. A pre-ERISA compilation, overtaken by later law and guidance; useful for the history and sources of the 100-to-1 rule. It was replaced by the updated guides in Rev. Rul. 69-421, 1969-2 C.B. 59 (which restates Part 2(n)), and later obsoleted by Rev. Rul. 72-488 (per Tax Notes status data).

A retirement plan provided preretirement death benefits through life insurance bought with employer contributions, within the Rev. Rul. 60-83 limits, and let employees direct their voluntary contributions (up to 10% of pay, but not the earnings on them) to buy additional insurance. Held: the plan does not fail to qualify; the incidental requirement of § 1.401-1(b)(1)(i) and (ii) does not apply to insurance bought with voluntary employee contributions. The ruling does not address how the cost of that insurance is taxed (see Rev. Rul. 68-390).

Full text is reproduced in the PS 58 Costs article. Older revenue rulings are not posted on irs.gov.

Variable whole life policies whose death benefit rises or falls each policy anniversary with the separate account's investment experience (increases bought as paid-up whole life), but never below a guaranteed minimum, pay death benefits that are entirely excludable under § 101(a). The ruling concerns individually owned policies. For a variable policy held by a qualified plan, the exclusion is limited by Treas. Reg. § 1.72-16(c) to the proceeds in excess of the cash value immediately before death, and only if the participant paid or was taxed on the cost of the insurance; the cash value portion is a taxable plan distribution.

Full text is reproduced in the PS 58 Costs article. The ruling predates § 7702 (added in 1984); a contract issued later must also meet the § 7702 definition of a life insurance contract for § 101(a) to apply.

A DB plan's benefits are not definitely determinable unless any actuarial assumptions used (for example, for actuarially equivalent optional forms) are specified in the plan in a way that precludes discretion by the employer, plan administrator, fiduciary or actuary. They may be fixed (stated assumptions or a table of factors) or variable (a specified insurer's contract rates, or a set percentage of a specified bank's prime rate). Codified in § 401(a)(25) by the Retirement Equity Act of 1984. Pub. 6392 also requires the plan to state the assumptions used to offset a lump-sum death benefit by the QPSA value.

Situation 1: contracts that provide benefits at normal retirement age in excess of plan benefits mean the plan is not a § 412(i) plan, so the regular § 412 funding rules apply. Situation 2: life insurance above the plan death benefit does not by itself break § 412(i) or the incidental rule, but the excess premiums (and disability waiver premiums) are not currently deductible and carry over under § 404(a)(1)(E). Arrangements the same as or substantially similar to Situation 2 are listed transactions (effective February 13, 2004) if the employer has deducted premiums on a contract whose death benefit exceeds the participant's plan death benefit by more than $100,000. Modifies and supersedes Rev. Rul. 55-748; also discusses Rev. Rul. 81-162.

A plan funded with life insurance fails § 401(a)(4) if HCEs may buy their contracts from the plan at cash surrender value before distribution and NHCEs' purchase rights are not of inherently equal or greater value. Differences in the contracts (cash value growth, exchange features) can create distinct rights or features. A purchase right is an optional form of benefit to the extent it is a distribution alternative for § 411(d)(6)(A) benefits, and otherwise an "other right or feature". The ruling does not address the anti-cutback rules, though treating the right as an optional form suggests § 411(d)(6) may apply. Assumes PTE 92-6 covers the sale.

A pension trust bought retirement income contracts whose death proceeds above cash surrender value were paid to the trustee, not the beneficiary, to fund later premiums for other employees. The employer contributions attributable to that insurance are not a cost of the pension plan for the § 404(a)(1)(A), (B) and (C) limits (then 5% of pay, level funding, or normal cost plus 10% of past service) and are not currently deductible; unless otherwise determined, they are measured by applying the Rev. Rul. 55-747 P.S. 58 rates to the insurance that would revert to the trust on death that year. They may be deducted in later years under the § 404(a)(1)(D) carryover, for example when reverted proceeds reduce later contributions below the maximum. A contributory plan must separate employer and employee contributions first. Revoked P.S. No. 6 (1944), prospectively under § 7805(b). Rev. Rul. 2004-20 modified and superseded it, applying the same principle to life insurance in excess of the plan's incidental death benefit.

Full text is reproduced in the PS 58 Costs article.

Holds that a plan providing only ordinary life contracts (other than retirement income contracts), converted to life annuities at normal retirement age, is not a pension plan. Rev. Rul. 2004-20 adds that this analysis would not apply if the death benefit payable to the beneficiary were limited to an incidental death benefit, with the rest payable to the plan; it is not clear whether that statement comes from Rev. Rul. 81-162 or from Rev. Rul. 2004-20. Compare Rev. Ruls. 54-67 and 65-25.

Holding taken from Rev. Rul. 2004-20; original ruling not reviewed.

When the trustee surrenders a participant's life policy and uses the proceeds to buy a retirement annuity, PS 58 costs taxed while the policy was in force are not investment in the new annuity contract (§ 1.72-16(b)(4)).

Original PS 58 table (55-747, revoked by Notice 2001-10 and still revoked under Notice 2002-8). An insurer's published one-year term rates for individual insurance available to all standard risks may be used instead, for individual policies issued by the same insurer, if they are lower than the PS 58 rates (66-110). Dividend-option rates may not be used (67-154). For arrangements entered into after January 28, 2002, use of insurer rates for periods after 2003 is subject to the conditions in Notice 2002-8, § III.3 (see Rev. Rul. 2003-105). Covered in full in the PS 58 Costs article.

Safe-harbor formulas (based on interpolated terminal reserve and PERC, with surrender-factor adjustments) for valuing life insurance, retirement income and endowment contracts distributed or sold from a qualified plan, and for §§ 79, 83 and 402(b). The surrender-factor discount applies only to qualified plan distributions and sales of contracts with explicit, nonincreasing surrender charges fixed at issue; for §§ 79, 83 and 402(b) the factor is 1.00. Modifies and supersedes Rev. Proc. 2004-16.

Interim rule allowing cash value (without reduction for surrender charges) to be treated as FMV if at least equal to premiums plus credited amounts minus reasonable charges. It may still be relied on for transfers from February 13, 2004 through April 30, 2005.

Using cash surrender value as FMV of a distributed policy is not appropriate where total policy reserves are a much more accurate approximation of value. The T.D. 9223 preamble and Rev. Proc. 2004-16 § 2.06 add that Q&A-10 should not be read to mean that a contract's reserves (including § 807(d) life insurance reserves and reserves for advance premiums, dividend accumulations, etc.) are always an accurate measure of FMV; Rev. Proc. 2005-25 now provides the safe harbors.

Holding taken from the T.D. 9223 preamble; original notice not on irs.gov.

Notice 2002-8, 2002-1 C.B. 398, republishes Table 2001 for valuing current life insurance protection under split-dollar arrangements, qualified plans and employee annuities. It permits the insurer's lower published one-year term rates for standard risks, but for arrangements entered into after January 28, 2002 and periods after 2003 only if the insurer makes the rates known to applicants and regularly sells term insurance at those rates through its normal channels. It revokes Notice 2001-10 while Rev. Rul. 55-747 remains revoked. Covered in full in the PS 58 Costs article.

Release accompanying the 2004 package (proposed §§ 402, 79 and 83 regulations, finalized by T.D. 9223; Rev. Proc. 2004-16, superseded by Rev. Proc. 2005-25; Rev. Ruls. 2004-20 and 2004-21) aimed at springing cash value policies, excess insurance deductions and discriminatory purchase rights in § 412(i) plans.

Covers the § 412(e)(3) conditions, the incidental death benefit rule, excess insurance (Rev. Rul. 2004-20), nondiscriminatory purchase rights (Rev. Rul. 2004-21), valuation (Rev. Proc. 2005-25), and examiner issue indicators and audit tips.

Explains the 412(i) excess insurance and springing cash value abuses. It also notes the EPCRS limits for plans that were a party to an abusive tax avoidance transaction (citing Rev. Proc. 2019-19, § 4.12; the rule is now Rev. Proc. 2021-30, § 4.12). For failures directly or indirectly related to the transaction, SCP is unavailable. A VCP submission is reviewed with the Tax Shelter Coordinator, and if the failures are related, the IRS closes it without a compliance statement and refers the case for examination. Failures not related to the transaction are not barred.

Explains how Rev. Rul. 74-307 is applied to DB plans using a "theoretical contribution". Ordinary life premiums may not exceed 66% of it (33% for term or universal life). The theoretical contribution must use reasonable actuarial assumptions stated in the plan, and the death benefit may not exceed the face amount plus the theoretical ILP reserve less the cash value of the policies. The page also lists the alternative 25%-of-cost, 100-to-1, present-value-of-accrued-benefit and survivor-annuity tests, and the 401(h) 25% subordination test that includes life insurance.

Spring 2007 describes an option available in certain audit cases: treating a purported § 412(i) plan as never having been one and recomputing § 412 minimum required and maximum deductible contributions from inception under the plan provisions as they were. For listed-transaction plans the option is available only if the plan has no disqualifying defects; otherwise the plan is treated as nonqualified from inception. Summer 2007 reprints the June 5, 2007 EP Examinations instructions: same plan provisions (no retroactive amendments other than under former § 412(c)(8)), insurance valued at fair market value (Rev. Proc. 2005-25; annuities under Rev. Proc. 2006-13), and only the term cost of insurance, on a face amount not exceeding the plan death benefit, in normal cost.

Pre-PPA funding rules (Schedule B, former § 412(c)(8)); background on IRS resolution of 412(i) audit cases.

Lists the participant and contract data that the IRS will accept in a § 1.412(i)-1(b)(2)(ii) separate agreement with the insurer, provided the sponsor also keeps a reconciliation showing plan and contract benefits are identical in form and amount at normal retirement age. The agreement must be executed at plan inception and amended (or replaced) whenever a participant is added or receives a benefit increase.

This edition is no longer posted on irs.gov; the link goes to the Employee Plans News page. Use the local copy to verify the text.

IRS language for corrective amendments to pre-approved plans intended to be § 412(i) plans (local copy previously collected on the Resource Collections page).

Local copy is image-only, so its content has not been verified; official URL not located. It uses the pre-PPA § 412(i) name and was written for an earlier pre-approved plan cycle; check it against the current LRMs (for example LRM #42) before relying on it.

Determination-letter procedures for terminating plans. IRM 7.12.1.15 covers life insurance contracts: incidental limits (for DB plans, face generally not over 100 times the projected monthly benefit), springing cash value contracts (value at total policy reserves, not stated cash surrender value), and checks for fully insured § 412(e)(3) plans. IRM 7.12.1.17.1 restates the May 23, 1984 Joint Implementation Guidelines: for a spin-off/termination in which the employer recovers excess assets, benefits accrued in the ongoing plan must be provided by annuity contracts that are irrevocable commitments.

Plan assets must be valued at fair market value, not cost, to avoid prohibited transactions, exclusive-benefit and § 415 violations, excess § 404 deductions, § 412 funding violations and § 401(a)(4) discrimination. In a DB plan the asset values drive funding status and the deduction. The page does not address insurance specifically; use it alongside Rev. Proc. 2005-25 when the asset is a life insurance policy.

The cost of current life insurance protection is reported in boxes 1 and 2a with code 9, on a Form 1099-R separate from any other distribution, and is not subject to the § 72(t) additional tax.

IRS examiner training material. Its "Impact of insurance on funding" section explains how insurance-funded and split-funded DB plans were valued under the envelope and split-funded methods, and it covers the ILP funding method. Under the envelope method the deduction limit adds only a term insurance cost; under the split-funded method (only for contracts with projectable cash values, such as ordinary whole life) it adds the full premium.

Pre-PPA training text (it refers to § 412(c) and Schedule B); background only, not authority.

Statement of requirement: Treas. Reg. § 1.401-1(b)(1)(i); Rev. Ruls. 60-83, 74-307, 83-53 and 85-15. The QPSA is always incidental; any additional death benefit must fit one of the adoption agreement options: the 100-times-monthly-benefit limit (reduced by the PV of the QPSA), the excess of the PV of the accrued benefit over the PV of the QPSA, or the ILP "incidental reserve" with face amount purchasable by no more than 66% (whole life) or 33% (term/universal life) of the theoretical contribution.

Statement of requirement: IRC §§ 401(a)(4), 404(a)(2), 403(a), 411(b)(1)(F), 412(e)(3); Treas. Reg. § 1.401(a)(4)-3(b)(5); Rev. Proc. 2023-37, 10.02(2)(f)(vi) and (k). Pre-approved 412(e)(3) plans must meet the § 1.401(a)(4)-3(b)(5) safe harbor: level annual premiums to NRA, post-NRA premiums limited to new accruals, experience gains, dividends, forfeitures and similar items used solely to reduce future premiums (LRM #87), contracts of the same series, and the 0.80 permitted-disparity reduction (LRM #27D). Section A (frozen projected benefit, used instead of LRM #24) and Section B (no service before participation, except to the extent a formula adopted and in effect on Sept. 19, 1991 recognized it, and then only for employees who were participants by that date) are also required. A statutory hybrid plan funded this way may not be pre-approved.

Statement of requirement: Treas. Reg. § 1.404(a)-8; Rev. Rul. 60-33. Required in every § 412(e)(3) plan (trusteed or not) and every non-trusteed plan funded only with insurance contracts.

Statement of requirement: IRC § 401(a)(2); Rev. Rul. 91-4. Every plan with a trust (including a top-heavy side-fund trust) or custodial account, whether fully insured or funded only with insurance, must include this language. Trusteed fully insured plans also need LRM #87; fully insured non-trusteed plans use LRM #87 instead of LRM #80.

Statement of requirement: Treas. Reg. § 1.401-1(a)(3)(iii); Rev. Proc. 2023-37, 9.02(7) and 12.03(5). Alternatively, the plan may provide that only contracts that conform to the plan will be issued.

Statements of requirement: Treas. Reg. § 1.401(a)-20, Q&A-2 (LRM #49) and IRC § 401(g) (LRM #50).

Statement of requirement includes Treas. Reg. § 1.401-1(b)(1)(i). Instead of stating interest and mortality, the adoption agreement may name an insurance or annuity contract whose assumptions define actuarial equivalence. Not available with a cash balance formula. A change of contract that changes the assumptions is a plan amendment (LRM #66).

Statement of requirement: IRC § 401(a)(4); Rev. Rul. 69-251. Reviewer note only (no sample language).

Statement of requirement: IRC § 412(e)(3); Treas. Reg. § 1.401(a)(4)-3(b)(5); Rev. Proc. 2023-37, 10.02(2)(k). Reviewer note only.

Statement of requirement includes IRC § 412(e)(3)(F). See also the LRM #32 bar on policy loans and security interests.

LRM #34 (IRC § 411(a)(9); Treas. Reg. § 1.411(a)-7(c)) excludes premiums on disability or term insurance when comparing early and normal retirement benefits. LRM #57 (Treas. Reg. § 1.401(a)(4)-5(b); Rev. Rul. 92-76) excludes death benefits provided by insurance on the employee's life from the "benefit" restricted for the 25 highest paid HCEs.

LRM #23: in a § 412(e)(3) plan, "projected benefit" and "frozen projected benefit" replace "accrued benefit" and "frozen accrued benefit" in the fresh-start rules, and neither the formula without wear-away nor the formula with extended wear-away applies to a plan using the insurance contract plan safe harbor of § 1.401(a)(4)-3(b)(5); the formula with wear-away is used instead. LRM #39: no part of a deductible voluntary contribution account will be used to purchase life insurance. LRM #63 (reviewer note): a fully insured plan meeting § 411(b)(1)(F) may use the § 411(a)(6)(C) five-consecutive-break rule for pre-break vesting.

An insurer asked about a level-premium, level-face whole life policy sold with a qualified plan rider (plus four optional riders) for plan ownership. Because, for the block of business as a whole, guaranteed cash values exceed 50% of accumulated scheduled premiums (a few cells fell to 45% to 49%), less than half the premium buys pure protection, so the contract is "ordinary" life insurance under Rev. Rul. 54-51 and the riders do not change that. Death benefits are incidental under § 1.401-1(b)(1) if less than 50% of the total contributions allocated to the participant are applied to premiums on this contract or any other life insurance on the participant's life. Also summarizes Rev. Ruls. 54-51 (convert the contract at or before retirement so no value continues insurance), 61-164 and 66-143.

Applies the less-than-50%-of-allocated-contributions test of Rev. Ruls. 54-51 and 74-307 to "Qualified Plans" generally; it does not discuss how to measure contributions in a defined benefit plan. The theoretical individual level premium approach practitioners use for defined benefit plans is not in the text of Rev. Rul. 74-307. A PLR may not be used or cited as precedent (§ 6110(k)(3)). Scanned PDF.

A DB plan had funded with whole life policies plus an auxiliary fund and reported PS 58 costs to participants. In 1978 it was restated to drop pre-retirement death benefits, and the trustee surrendered the policies and reinvested in securities. Because the proceeds were paid to the trustee to fund plan benefits (indirectly payable under § 1.72-16(b)(1)(ii)) and the plan became a single program under § 1.72-2(a)(3), the IRS ruled the PS 58 costs remain the participant's investment in the contract. The ruling does not cite Rev. Rul. 67-336. It reads the "indirectly payable" language of § 1.72-16(b)(1)(ii), which governs whether PS 58 costs are taxable, broadly, and its result conflicts with Rev. Rul. 67-336 and PLRs 7902083, 7922109 and 8539066, where surrender inside the plan eliminated PS 58 basis.

Not on irs.gov (written determinations before 1999 are not posted there). Full text is reproduced in the PS 58 Costs article. A written determination may not be cited as precedent (§ 6110(k)(3)). Secondary source, not the original ruling: Tax Facts Q 3952 (ALM/ThinkAdvisor) cites it (n. 5) for: "Where a plan was amended to eliminate death benefits for employees dying prior to age 65 and its trustees redeemed the whole life insurance policies and invested the proceeds in various securities, the plan became a single program of interrelated contributions and benefits; the employees then could recover their taxable insurance cost from distributions from the plan."

A DB plan funded entirely with § 412(i) retirement income and endowment contracts was terminating; participants could take cash, transfer to another plan, or take assignment of their contracts. The IRS ruled that PS 58 costs the participant reported as income are employee contributions recoverable under § 72 (§§ 72(f), 1.72-8(a)(1), 1.72-16(b)(4)) when the contract that provided the protection is assigned to the participant, whether or not an immediate settlement option is elected. It distinguishes Rev. Rul. 67-336, where the policy was surrendered inside the plan and the basis was lost. Electing an immediate settlement option converted the contract into a nontransferable annuity, so no part of the death proceeds was excludable under § 101(a). The ruling also noted that PS 58 basis, as employee contributions, could not be rolled over under then § 402(a)(5)(B); current § 402(c)(2) allows after-tax amounts to be rolled over to an IRA, or by direct transfer to a plan that accounts for them separately.

Not on irs.gov. The local copy is from the Research Library; full text is also reproduced in the PS 58 Costs article. A written determination may not be cited as precedent (§ 6110(k)(3)).

A contributory DB plan said each participant's mandatory contributions are applied first to the cost of life insurance protection. Unlike the default in Rev. Rul. 68-390 (employer contributions and trust income pay first), the annual cost is taxable only to the extent it exceeds the year's contributions plus unused contributions from prior years. Unless the policy itself is distributed, contributions so applied lose their character as employee contributions: if the trustee surrenders it, basis is only the contributions not applied to insurance (Rev. Rul. 67-336), which also capped the rollover under then § 402(a)(5). If the policy itself is distributed, basis includes all amounts applied to insurance cost (employee contributions plus amounts taxed). The ruling states that the § 101 exclusion under § 1.72-16(c) applies only where the policy itself is distributed; the regulation contains no such limit, and the ruling applied the exclusion to death proceeds paid from plan-held policies (ruling 5). Current § 402(c)(2) allows after-tax amounts to be rolled over to an IRA, or by direct transfer to a plan that accounts for them separately.

Not on irs.gov (written determinations before 1999 are not posted there). Full text is reproduced in the PS 58 Costs article. A written determination may not be cited as precedent (§ 6110(k)(3)).

A DB plan merged into a profit-sharing plan in 1972 and its whole life policies came with it. If the trustee surrenders the policies and the cash is added to the account, or used to buy an annuity, the aggregate PS 58 costs are not basis because the contract on which the participant was taxed is not distributed (Rev. Rul. 67-336); basis is the voluntary contributions, and the rest may be rolled over within 60 days. If the policies are distributed after cash value above the aggregate PS 58 costs is stripped into the account, the policies and voluntary contributions may not be rolled over; for that option the ruling confirms only that voluntary contributions are basis (if ten-year averaging is elected) and does not say whether the PS 58 costs are basis. A reduced, paid-up deferred annuity may be rolled over.

Not on irs.gov (written determinations before 1999 are not posted there). Full text is reproduced in the PS 58 Costs article. A written determination may not be cited as precedent (§ 6110(k)(3)). Rollover and ten-year-averaging conclusions reflect 1985 law; current § 402(c)(2) allows after-tax contributions to be rolled over to an IRA (life insurance still may not be held in an IRA, § 408(a)(3)). Tax Facts Q 3952 cites this ruling for the point that recoverable basis is the total income reported, not the tax paid; the ruling text does not discuss that point.

A participant in a noncontributory profit-sharing plan, taxed each year on PS 58 costs, received a lump sum of the policies' cash surrender value plus the account balance. Because the trustees surrendered the policies and distributed cash, the contract on which he was taxed was not distributed, so under § 1.72-16(b)(4) and Rev. Rul. 67-336 the PS 58 costs are not employee contributions and, under the 1978 version of § 402(a)(5) (which required rolling over all amounts above basis), had to be included in the rollover. Current § 402(c) permits partial rollovers.

Not on irs.gov (written determinations before 1999 are not posted there). Full text is reproduced in the PS 58 Costs article. A written determination may not be cited as precedent (§ 6110(k)(3)).

A mutual insurance holding company converting to stock form paid policyholders with policy credits, including on individual life and annuity contracts issued to § 401(a)/403(a) plan participants and group annuity contracts funding qualified plans. The IRS held the credits are neither a distribution nor a contribution (no § 72(e) income or § 72(t) tax, no § 4973 tax for IRAs and TSAs or § 4979 tax, no § 3405 withholding; the analysis adds no § 6047(d) reporting) and are not current income to qualified-plan customers. The credits are treated as investment earnings, not investment in the contract.

Concerns value added inside a plan-owned contract; it does not address fair market value when a policy is distributed (see Rev. Proc. 2005-25). Binds only the requesting insurer; a PLR may not be used or cited as precedent (§ 6110(k)(3)). Scanned PDF.

Mostly a corporate reorganization ruling for a mutual insurer in rehabilitation. Rulings 23 to 25 (expressly valid only for § 403(a)/(b) annuity arrangements and § 408(a)/(b) IRAs, not § 401(a) trusts) cover non-trusteed tax-qualified retirement funding contracts: adding a plan credit is neither a distribution nor a contribution (no § 72 income before actual receipt, no § 72(t), § 4973 or § 4979 tax, no § 3405 withholding), is not investment in the contract under § 72, and counts as investment earnings for minimum distribution purposes.

Binds only the requesting taxpayer; a PLR may not be used or cited as precedent (§ 6110(k)(3)).

Technical advice memorandum on a corporate split-dollar arrangement, not a qualified plan. Insurer-furnished rates could not substitute for the Rev. Rul. 55-747 PS 58 rates under Rev. Ruls. 66-110 and 67-154 because they were not the insurer's current published one-year initial-issue term rates available to all standard risks (they were three-year duration rates applied as if one-year rates, excluded smokers, used a high band available only for policies of $200,000 or more, were limited to the employer-sponsored market, and were not shown to be published).

Background for the insurer-rate alternative now in Notice 2002-8. A TAM may not be used or cited as precedent (§ 6110(k)(3)). Scanned PDF.

An employer's contribution of property to a DB plan credited against its funding obligation is a prohibited "sale or exchange" under § 4975(c)(1)(A). The Court noted that a contribution of unencumbered property not credited against a funding obligation is outside § 4975(c)(1)(A), while § 4975(f)(3) treats any contribution of encumbered property, such as a policy subject to a loan, as a sale or exchange. This is relevant to contributing life insurance policies to a DB plan; see PTE 92-5 and IB 94-3.

Selecting an annuity provider on termination is a fiduciary act requiring a careful, impartial investigation. The court declined to adopt IB 95-1's "safest available annuity" as the legal standard but found IB 95-1's investigation factors "instructive" and consistent with ERISA. Price may be the motivating factor only after a prudent investigation finds the providers comparable. Summary judgment for RJR was reversed and the case remanded on whether its choice of Executive Life was prudent; the plan was overfunded, with a potential reversion.

Affirmed dismissal of challenges to an $8.4 billion group annuity purchase for about 41,000 retirees. The decision to amend the plan to transfer liabilities was a settlor function, and the non-transferee class lacked standing absent a substantial risk of plan default.

Fiduciary and prohibited-transaction claims over PRT purchases from Athene. The district court denied Lockheed's motion to dismiss, which argued only lack of Article III standing (Mar. 28, 2025), then certified an interlocutory appeal (July 22, 2025). The Fourth Circuit accepted the appeal (Sept. 9, 2025); the Secretary of Labor filed an amicus brief supporting Lockheed (Jan. 9, 2026). No decision had issued as of Oct. 29, 2026.

Check the docket for the current status before citing.

Eight retirement-income contracts were distributed when a qualified pension trust terminated. The seven whose cash value had reached the face amount no longer provided insurance protection and were treated as annuity contracts, so their cash value was not taxed on distribution. The eighth still carried insurance protection, and its cash value was taxable under former Reg. § 1.402(a)-1(a)(2) because it was not made nontransferable within 60 days. The court described insurance protection as face amount less cash surrender value (a form of decreasing term insurance) and noted the 100-times-monthly-benefit incidental rule.

Linked text is an unofficial reporter. Decided under the pre-2005 "cash value" regulation; current rules use fair market value (T.D. 9223).

The cost of current life insurance protection bought with deductible contributions or trust income is taxable to the participant under § 72(m)(3) and Reg. § 1.72-16, even though the trustee owned the policies. Forfeiture provisions reaching only the cash surrender value did not avoid inclusion, because the beneficiary was entitled to the amount at risk (face amount less cash value). The current taxation corresponds to the § 101 exclusion of the pure insurance portion of the death proceeds.

Linked text is an unofficial reporter. The plan's requirement to convert policies at retirement was a plan term, not a holding that post-retirement insurance is prohibited.

On termination of a pension trust the participant received his life insurance policy in 1971 (surrendering it for $5,171) and the remaining cash in 1972. The policy and cash were components of one total distribution, so former § 402(a)(2) lump-sum capital-gain treatment was lost because the total was not paid within one taxable year. Shows that a distributed policy is part of the participant's plan distribution and must be coordinated with the rest of the benefit.

Linked text is an unofficial reporter. The capital-gain lump-sum rule is repealed; the coordination point remains relevant.

A profit-sharing plan sold a whole life policy to the insured at its cash surrender value because the insurance advisor believed the premium would exceed 49.9% of the year's contribution and threaten qualification. On counsel's view that a direct transfer to the wife would be a prohibited transaction, the policy was sold to the insured, who then gave it to her. The court did not decide the incidental-benefit or § 4975 questions. It held the proceeds were not included in the estate under former § 2035 because the transfers were motivated by preserving plan qualification, not by thoughts of death.

Profit-sharing plan; estate-tax holding. Linked text is an unofficial reporter. A sale at cash value could still satisfy PTE 92-6, which looks to the surrender value, but for transfers on or after August 29, 2005 the excess of fair market value over the price is a distribution (T.D. 9223; Treas. Reg. § 1.402(a)-1(a)(1)(iii)).

A profit-sharing plan discovered that its premium payments failed the 50% test (Rev. Rul. 74-307; Rev. Rul. 54-51, as modified by Rev. Rul. 57-213), cancelled the policy and credited the cash value to the participant's account. The plan sued the insurance agent for the loss. The Fifth Circuit reversed a $63,300 judgment against the agent. He was not a fiduciary under ERISA § 3(21)(A)(i) because the trustee made the purchase decisions, and he was not an investment-advice fiduciary under § 3(21)(A)(ii) because he did not give advice on a regular basis under a mutual understanding that it would be a primary basis for the plan's decisions.

State-court professional liability case. The plan limited whole life premiums to 49% of the theoretical contribution used for the theoretical individual level premium reserve; the policy that issued was under the 66 2/3% limit the court described but over the plan's own 49% cap. On audit the IRS treated the plan as a listed transaction, and the court of appeals affirmed the judgment on a jury verdict against the plan's drafter and administrator for failing to amend the plan, rejecting procedural and evidentiary challenges; liability and the tax treatment were not at issue on appeal. The only reported opinion located that describes the DB theoretical ILP contribution.

Not a federal tax decision. The court described the 66 2/3% cap as "allowed by IRS regulations" and cited a practitioner treatise for the ILP definition; no regulation states that figure. IRS Pub. 6392 states 66% (ordinary life) and 33% (term or universal life).

A plan's transfer of a life policy to the participant for its depressed cash value was a bargain sale. The $1,053,304 bargain element was taxed under § 61; the court did not decide whether it was also a § 402(a) distribution (n.5), and it rejected the accuracy-related penalty because the question was unsettled. Under pre-2005 Reg. § 1.402(a)-1(a)(2), "entire cash value" means the account value without reduction for surrender charges, read consistently with §§ 72(e)(3) and 7702(f)(2)(A). Footnote 11 rejects reliance on PTE 77-8 for the same reason. The case arose in a profit-sharing plan under the pre-2005 regulation. The "entire cash value" rule applies to qualified plan distributions and sales before August 29, 2005; later transfers are valued at fair market value under amended Reg. § 1.402(a)-1(a)(1)(iii) and Rev. Proc. 2005-25 (compare Schwab, where surrender charges could be considered).

Linked text is an unofficial reporter; the official opinion is available through the U.S. Tax Court opinion search.

Policies distributed from a § 419 welfare benefit trust (taxed under § 402(b)) were taxed at fair market value rather than the $81,243 stated policy value the IRS sought, and surrender charges may be considered in determining that value. Because net surrender values were negative, the court included only $2,665.95, the value of the residual coverage, and rejected the penalty. The Ninth Circuit affirmed: no authority requires surrender charges always to be ignored, and the amount distributed is what a willing buyer would pay. May be persuasive by analogy for post-2005 qualified plan transfers, where amended Reg. § 1.402(a)-1(a)(1)(iii) also uses fair market value. Both courts distinguished the pre-2005 § 402(a) "entire cash value" rule (Matthies). Rev. Proc. 2005-25 did not apply to these distributions, and Cadwell applied it to disregard surrender charges.

Welfare benefit plan, not a DB plan. Linked Tax Court text is an unofficial reporter.

A variable universal life policy distributed from a nonexempt § 419 welfare benefit trust is taxed at fair market value on the distribution date, and surrender charges may be taken into account. Summary judgment for the IRS was denied because fair market value was a disputed fact.

Welfare benefit plan, not a DB plan. Linked text is an unofficial reporter.

A law partnership's individual DB plans for its partners (self-employed individuals) bought universal life policies to provide a preretirement death benefit. Under § 404(a)(8) and (e) and Treas. Reg. § 1.404(e)-1A(g), contributions on behalf of a self-employed individual that are allocable to life insurance protection are not deductible, and that amount is a "reasonable net premium cost" for the insurance (Treas. Reg. § 1.72-16(b)(3); the opinion and § 1.404(e)-1A(g) cite (b)(5)): the premium cost of the insurance less any cash value inherent in the policy. The partnership conceded that cost ($111,094). The IRS argued that the premium allocated to the policy's cash value was also nondeductible because it would later pay for term coverage; the court disagreed. Only the cost of insurance protection is nondeductible; the cash value portion is deductible, and when it is later used to pay term premiums, that amount is taxable to the participant in that year. The court also held that using the 1958 CSO table for preretirement mortality, while using annuity tables for postretirement mortality, was reasonable under § 412(c)(3), because the CSO table estimates what an insurer would charge for the coverage. The companion case Vinson & Elkins v. Commissioner, 99 T.C. 9 (1992), decided the same day, addresses the actuarial assumptions for another firm's partners' plans.

The parts of the opinion on the preretirement death benefit, preretirement mortality and § 404(e) deductibility are reproduced in the PS 58 Costs article; the holdings on the other actuarial assumptions (interest rate, age-55 retirement, expense load) are omitted. Affirmed, 26 F.3d 291 (2d Cir. 1994), on the § 412(c)(3) actuarial assumption issues; the appellate opinion does not discuss the § 404(e) insurance-cost holding.

Contributions to VEBA plans that bought group term policies with conversion credits, far above the cost of term protection, were not deductible and were taxed to the owner-physicians as constructive dividends, with negligence penalties. The courts looked through the insurance and employee-benefit labels to the economics.

Welfare benefit (VEBA) arrangement, not a qualified plan; included as an adjacent authority on excess-premium designs.

An individually underwritten cash value policy on the shareholder-employee, held under a purported welfare benefit plan, was a nonqualified deferred compensation arrangement under § 402(b)(4) and, because a pre-September 17, 2003 arrangement was materially modified in 2005, a compensatory split-dollar arrangement under Reg. § 1.61-22. It was not group term insurance. The economic benefit was taxable each year, the employer's $100,000 contribution was not deductible, and accuracy-related penalties applied.

Split-dollar / welfare arrangement, not a qualified plan; included as an adjacent authority. Linked text is an unofficial reporter.

Taxpayers stipulated that their 2004 § 412(i) plan arrangement was a listed transaction under Rev. Rul. 2004-20; the additional income tax had been assessed and paid separately. The court sustained the § 6662A reportable-transaction penalty at the 30% rate for nondisclosure. The § 6664(d) reasonable-cause exception was unavailable because no Form 8886 was attached to the original return.

Linked text is an unofficial reporter.

Covered in the PS 58 Costs article. In a nonexempt § 419 welfare benefit trust (§ 402(b) and § 61), where the policy was valued under the PERC safe harbor, the current-year insurance cost was the mortality and expense charges ($11,136), not the Table 2001 rate ($13,510), to avoid double counting. Not a qualified plan case.

Fiduciaries must take steps calculated to obtain the safest annuity available, unless circumstances warrant otherwise, through an objective, thorough and analytical search. Factors include portfolio quality, insurer size, capital and surplus, lines of business, contract structure and separate accounts, and state guaranty coverage. Ratings alone are not sufficient.

Following Keystone, an in-kind contribution to a DB plan credited to the funding standard account is a prohibited transaction absent an exemption, even if it exceeds the current year's funding obligation.

Plan asset status of policies issued by an insurer supported by its general account (for policies issued on or before December 31, 1998).

Safe harbor for selecting annuity providers under defined contribution plans, and FAB 2015-02 on the "time of selection" standard and monitoring. See also the statutory DC safe harbor in ERISA § 404(e) (added by the SECURE Act in 2019) for selecting an insurer for a guaranteed retirement income contract. These apply to DC plans, not DB plans, but are useful by analogy. No Field Assistance Bulletin specific to insurance in DB plans was located.

For an employee pension benefit plan (whoever is the policyholder), or where any plan or trust is the policyholder, or where premiums are paid from trust assets, DOL views all demutualization proceeds received by the policyholder as plan assets (AO 2001-02A n.2 and the Information Letter). The AO itself holds that Prudential does not become a fiduciary merely by describing feasible allocation methods or by implementing a default allocation the plan fiduciary chooses. The letter's trust relief (non-enforcement if the proceeds are held in an account in the plan's name and applied within 12 months) is available only to plans not otherwise required to maintain a trust under ERISA § 403, so a trusteed DB plan must hold the proceeds in trust.

A policy insuring the participant and spouse can be an "individual life insurance contract" for PTE 92-6, to the extent state law and the plan permit; DOL declined to extend this to contracts covering other insured persons (67 FR 56314). AO 1998-07A also allows a sale to more than one relative and the sale of a severable part of a contract. A sale to the insured spouses at cash surrender value can qualify if that is at least what the plan would receive on surrender. AO 2006-03A (a participant-directed profit-sharing account; both spouses were participants) notes that if the policy's fair market value exceeds the price paid, the excess is a taxable distribution and is treated as a distribution for all Code purposes (including in-service distribution limits and § 415), even though PTE 92-6 relief is unaffected.

An employer's amendments eliminating retiree life insurance from its welfare plan and adding similar benefits to its overfunded DB plan are settlor decisions. Implementation is a fiduciary act, but it does not violate ERISA §§ 403(c), 404 or 406 merely because the employer benefits by no longer paying and accounting for the welfare-plan liability. Assumes the pension plan stays tax-qualified.

Permits a plan to sell an individual life insurance or annuity contract to the insured participant, a relative of the participant, the employer, another plan or (under the 2002 amendment, effective retroactively to Feb. 12, 1992) a trust established by or for the benefit of the participant or such a relative. Conditions: the participant is the insured; a relative buyer is a § 3(15) relative or a sibling (or sibling's spouse), and a relative or trust buyer is the beneficiary under the contract; the contract would, but for the sale, be surrendered by the plan; for a sale to anyone other than the participant, the participant is first told of the proposed sale and given the chance to buy, and delivers a written statement declining to buy and consenting to the sale; and the plan receives at least the amount that leaves it in the same cash position as if it had kept the contract, surrendered it and paid any distribution owed on the participant's vested interest. Section 406(b)(3) is not covered. Extended to owner-employees and shareholder-employees. In a DB plan the fiduciary must actually determine that the plan would otherwise surrender the contract; DOL's statement that participant direction satisfies this condition (67 FR 56314; AO 2006-03A) concerns participant-directed DC accounts.

Permits a plan to acquire (by sale, transfer or exchange) an individual life insurance or annuity contract from the participant on whose life it was issued, or from an employer any of whose employees are covered by the plan (owner-employees and shareholder-employees included effective Oct. 22, 1986). Conditions: the plan pays no more than the lesser of the cash surrender value and, for a DB plan, the value of the participant's accrued benefit (for a DC plan, the account balance); the plan does not assume a mortgage or similar lien on the contract (policy loans are commonly treated as such a lien); the transaction does not contravene the plan or trust document; and a welfare plan meets a nondiscrimination condition. An employer's contribution of a policy to a DB plan is a sale under IB 94-3; whether PTE 92-5 exempts it (treating the funding credit as the exchange, subject to the price cap) is not addressed in the exemption's text.

Covers an agent's, broker's or pension consultant's receipt of a sales commission when plan assets buy an insurance or annuity contract, the effecting of that purchase, and the purchase of the contract from an insurer that is a party in interest or fiduciary (plus parallel relief for mutual fund principal underwriters). Conditions: the transaction is in the ordinary course of business and on terms at least as favorable as an arm's-length deal; total fees, commissions and other consideration are no more than reasonable compensation under ERISA §§ 408(b)(2), 408(c)(2) and Code § 4975(d)(2), (d)(10) (if exceeded, only the excess is the "amount involved"); the agent is not a trustee (other than a nondiscretionary trustee), the plan administrator, a discretionary fiduciary over the assets, or an employer of covered employees; before the purchase the agent gives an independent fiduciary written disclosure of any affiliation or limiting agreement with the insurer, the commission as a percentage of gross annual premium for the first year and each renewal year, and the contract's charges, fees, penalties and surrender adjustments; and that fiduciary acknowledges receipt and approves in writing. The approving fiduciary may be the employer, but not the agent or insurer, and may receive nothing from a party to the deal. Disclosure need not be repeated for additional purchases unless 3 years have passed or the contract or commission is materially different, and records are kept for 6 years. Under the 2006 amendment (71 FR 5887), an agent whose affiliate is a trustee or investment manager of the plan may still rely on the exemption if the affiliate has no discretionary authority or control over the plan assets involved (other than as a nondiscretionary trustee). For a DB plan buying life insurance or annuities, this is the usual exemption for the agent's commission. An agent who is an employer of covered employees (for example a sole proprietor or the sponsoring agency) is excluded. PTE 79-60 may then apply, but only if the plan is maintained by an insurance agent or broker, the plan pays no more than adequate consideration, and commissions from such sales are no more than 5% of the agent's total insurance commission income for the year; otherwise no class exemption may be available. Whether an individual shareholder-agent of a corporate sponsor is "an employer" for this exclusion is not settled by the text.

Not in force: the April 2024 amendment, published with the Retirement Security Rule. It would have added a new Section III(g) giving relief to "Independent Producers" (insurance agents authorized to sell annuities from two or more unrelated insurers) who give fiduciary investment advice, including rollover advice, on non-security annuities, subject to Impartial Conduct Standards, a written acknowledgment of fiduciary status, conflict disclosures and insurer oversight. It would also have removed advice-driven transactions from Section III(a)-(f). Its September 23, 2024 effective date was stayed by both district courts (Fed'n of Ams. for Consumer Choice v. DOL, 742 F. Supp. 3d 677 (E.D. Tex. 2024); Am. Council of Life Insurers v. DOL, No. 4:24-cv-482-O (N.D. Tex. July 26, 2024)). DOL's notice of court vacatur (91 FR 13503 (Mar. 20, 2026), a final rule and technical amendment effective Apr. 20, 2026) says the 2024 stay orders remain undisturbed because of the Fifth Circuit's dismissal of the consolidated appeal (Nov. 28, 2025) and the district courts' final judgments (Mar. 12 and 17, 2026), and (n.5) that EBSA's website will be updated to reflect the applicability of the pre-amendment version of the affected exemptions, including 84-24. The notice describes the 2024 fiduciary rule and the PTE 2020-02 amendments as vacated, but the 84-24 amendment only as stayed. The 2016 amendment fell with the 2016 fiduciary rule (Chamber of Commerce v. DOL, 885 F.3d 360 (5th Cir. 2018); 85 FR 40589 (July 7, 2020)). The conditions summarized above are those carried forward from the pre-amendment exemption, as restated in the 2024 amendment document; they have not been compared line by line with 49 FR 13208 and 71 FR 5887.

PTE 79-41 permits an insurer that is a party in interest through a 50%-or-more stock or partnership affiliation with the employer (ERISA § 3(14)(E) or (G)) to sell life insurance, health insurance, annuity and § 801(g) contracts to the employer's plan. Conditions: the insurer is state-licensed, holds a current certificate of compliance and has had a state or CPA examination; the plan pays no more than adequate consideration; no commissions are paid; and premiums from affiliated plans and their employers are no more than 50% of the insurer's gross premiums for all lines. Reinsurance arrangements are not covered. PTE 79-60 applies only to a plan maintained by an insurance agent or broker. It permits that agent or broker, or a listed related person (a 10%-or-more partner; an employee, officer, director or 10%-or-more shareholder of the employer; or a § 3(14)(E) or (G) affiliate), to sell insurance or annuity contracts to the plan and receive the commission. Conditions: the plan pays no more than adequate consideration, and commissions from such sales in the agent's taxable year are no more than 5% of the agent's total insurance commission income for that year (first-year and renewal commissions count together). Other related persons look to PTE 84-24.

Relief for transactions between parties in interest and an insurer's general account (95-60) or pooled separate accounts (90-1, superseding 78-19) in which plans invest, including holding employer securities and real property.

Benefits are distributed by purchasing irrevocable commitments from an insurer or in another permitted form. The insurer must be selected under Title I fiduciary standards, and participants receive a certificate or contract copy.

Once irrevocable commitments are purchased, PBGC no longer guarantees those benefits.

Explains the bar on purchasing irrevocable commitments between the notice of intent to terminate and the end of PBGC's review period (§ 4041.22) and its exceptions, and requests comment on pre-termination annuity purchases.

Request for public comment (comments were due Jan. 22, 2010), not operative guidance. No final PBGC guidance on pre-termination purchases was located; the § 4041.22 rules it describes are in the regulation itself.

For allocating assets on termination, plan assets are generally valued at fair market value as defined in § 4001.2 or, as appropriate, at fair value under U.S. GAAP (July 2023 amendment, for terminations initiated on or after Aug. 10, 2023; before that, fair market value based on the method that most accurately reflects it). Benefits are valued under §§ 4044.51-.58 or 4044.71-.75. The rule does not address insurance contracts specifically; in our view a policy's fair market value is generally neither its face amount nor automatically its cash surrender value.

The sponsor's funded status compares the benefit obligation with plan assets at fair value, so a plan-held policy counts at its fair value, not its face amount or its Table 2001 cost. FAS 158 requires the over- or under-funded status on the balance sheet.

Accounting standard, not tax or ERISA authority.

For qualified plans that buy life, accident or health insurance with funds not yet accumulated for the plan's deferral period: (1) ordinary life premiums may not exceed the Rev. Rul. 54-51 percentage (less than half of allocated contributions); (2) accident and health premiums alone may not exceed 25% of those funds; (3) with both, accident and health premiums plus half the ordinary life premiums may not exceed 25% at any time. Treats only about half of an ordinary life premium as pure insurance.

Original ruling (irs.gov). The ruling arose from major medical premiums paid from profit-sharing accounts, which it treats as § 402 distributions.

A 25% limit on pure insurance protection applies to a profit-sharing plan or a money purchase pension plan. The 50% limit on account amounts used for ordinary life premiums is consistent with it, because only about half of an ordinary life premium is pure protection and the rest builds a reserve (Rev. Rul. 61-164).

The "Verify source" link opens PLR 201043048, which describes this ruling on p. 5; the original ruling is not on irs.gov. Holding taken from that PLR, Rev. Rul. 74-307 and the PS 58 Costs article; original ruling text not reviewed.

A decreasing amount whole life policy ($2,000 falling to $1,000 by year 11, then level for life) was used in a profit-sharing or defined contribution plan. Because its pure insurance element is a larger share of the premium than in level ordinary life, it is not "ordinary life" under Rev. Rul. 54-51, so the 50% limit does not apply. Its cost is incidental under Rev. Rul. 61-164 if each participant's aggregate premiums never exceed 25% of the funds allocated to the participant's account. Confirms the Rev. Ruls. 54-51 and 61-164 limits apply to money purchase and other defined contribution plans as well as profit-sharing plans (see also Rev. Rul. 66-143).

Full text is reproduced in the PS 58 Costs article. Older revenue rulings are not posted on irs.gov.