Experts Downplay Effects Of IRS 412(i) Moves

NU Online News Service, Feb. 20, 2004, 5:58 p.m. EST – Insurance experts are downplaying the likely effects of the new Internal Revenue Service attack on aggressive 412(i) retirement plans.[@@]

The American Council of Life Insurers, Washington, put out a statement saying its members continue to study the guidance the IRS put out on the issue and the agency’s proposed 412(i) plan regulations.

But “our members’ initial read of this guidance is that most plans will not run afoul of what the IRS has indicated it is trying to limit,” the ACLI says.

Guardian Life Insurance Company of America, New York, is one of the ACLI members combing through the new 412(i) plan information for surprises.

Guardian has been selling insurance policies and annuity contracts to 412(i) plan sponsors since the 1960s, and it recently introduced a new family of 412(i) funding products that offer a guaranteed rate of return of 3%.

So far, Guardian does not believe the new IRS actions will have much of an effect, if any, on its 412(i) plan program, according to Katherine Readinger, the company’s director of life product support for individual markets.

“Guardian has always taken a very conservative approach to 412(i) planning to assure that all safe harbor and other requirements are met,” Readinger says in written comments about the guidance. “We have continued this philosophy in designing our new suite of whole life and annuity products and expect increased interest in Guardian offerings for those for which 412(i) is a benefit.”

Section 412(i) of the Internal Revenue Code lets employers use guaranteed life insurance policies and annuity contracts to fund simple defined benefit retirement plans.

Because the sponsors must use funding vehicles that offer guaranteed benefits, the IRS exempts them from some of the recordkeeping requirements and other requirements that it imposes on bigger, more complicated defined benefit plans.