Article On The Abuse Of 412(i) Plans Hits A Nerve

Article On The Abuse Of 412(i) Plans Hits A Nerve

To The Editor:

Thank you for printing an article on the concerns regarding the abuses that are taking place in the 412(i) defined-benefit arena. I know Tom Higgins well and respect his expertise in the pension market. His article in the May 5 issue on the 412 plan is right on the money.

I have been presenting the 412 plans to qualified clients now for the last couple years since the changes with EGTRRA in 2001. My biggest concern for these plans has been the way they have been presented by uninformed or greedy advisors. I am fully aware of the law firm Tom refers to in his article. Not only are they aggressively promoting the plan, but they are selling plans that are heavily loaded and strictly commission-driven.

These are not individuals who are in the insurance business for a career but only for the short term to abuse a plan that allows larger contributions for smaller groups. They are the ones that will ruin the plans for those advisors who are designing them according to the Internal Revenue Service qualifications. It irritates the heck out of me when a group of people will take a good plan like the 412 and look for opportunities to abuse it for their own quick greed. I can assure you that they will be “out of the business” within three to five years, assuming they were ever in our business.

The 412 plans are designed for a relatively small group to participate for an extended period of time until retirement or until the plan is fully funded. There are distinct advantages to funding these plans at a level less than the maximum. There are several reasons that benefit the client but also for the obvious reasons the IRS allows these plans in the first place.