AALU Has Some Concerns About Proposed Guidance On 412(i) Plans
Proposed Internal Revenue Service guidance on Section 412(i) plans may artificially inflate the value of life insurance above its fair market value, says the Association for Advanced Life Underwriting.
Bob Plybon, president of the Falls Church, Va.-based group, says AALU is continuing to analyze the recent guidance on 412(i) plans and the valuation of life insurance.
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But he adds that artificially pegging the value of life insurance above its fair market value can disrupt proper planning, impose significant practical problems and set bad precedent.
AALU, he adds, is following a process to make sure it combines the input of producers, experts, carriers and the industry broadly.
“AALU will devote considerable attention to this issue over the course of the next 2 months and provide input to the government to try and find workable solutions,” Plybon says.
According to an analysis by AALU, the proposed guidance establishes a new fair market value principle in valuing life insurance for purposes of qualified plans.
The proposed guidance, AALU says, is presented in terms of a formulaic statementtotal premiums paid plus earnings less reasonable chargesthat takes the form of a safe harbor. Literally, AALU says, the guidance says that cash value, without reduction for surrender charges, “may be treated” as fair market value if it satisfies the minimum formulaic amount.
This suggests, AALU says, that cash value could be the fair market value even if it does not satisfy the formulaic amount but that it can always be treated as fair market value if it is at least equal to that calculation.