Producers have long viewed non-qualified plans for highly compensated executives as a lucrative area to be mined in pursuit of life insurance sales. But, pension consultants contacted by National Underwriter say that sales opportunities in the qualified plan arena abound as well, a fact that many ignore.
“For a small employer, offering life insurance as part of a qualified plan is a big advantage because it gives employees estate planning opportunities in combination with their retirement plan,” says Sarah Simoneux, a certified pension consultant and immediate past president of American Society of Pension Professionals and Actuaries (ASPPA), Arlington, Va.
Life insurance inside a qualified plan also offers tax advantages. Policy premiums are paid against pre-tax earnings, thus lessoning the burden on cash flow. And, in exchange for their contributions to premiums, employers enjoy an income tax deduction.
For producers, sources say, the sales opportunities are significant, but especially so should the business owner opt for a defined benefit plan. To satisfy non-discrimination testing under the Employee Retirement Income Security Act (ERISA), life insurance must be included in every employee’s defined benefit package should the employer choose to provide the insurance himself and/or key executives. By contrast, employers need only offer life insurance to employees under a defined contribution plan, such as a 401(k).
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But, observers caution that producers should not pursue qualified plan insurance sales without the assistance of a pension professional (such as a certified pension consultant, a designation now recognized by the Society of Financial Service Professionals) unless they have the requisite knowledge of tax and ERISA law pertaining to this area, and few do.
“The number of insurance professionals who spend enough time to experts in the qualified plan arena is woefully limited,” says Kerry Boyce, a pension consultant and CEO of Boyce & Associates, Scottsdale, Ariz. “As a firm, we deal with some 800 retirement plans that are serviced by 600 insurance agents and investment advisors. And of the 600, maybe 1% has an in-depth understanding of the qualified plan field, which is highly complex.”
Absent that expertise, insurance agents risk recommending a solution that runs afoul of IRS and ERISA laws — and generating bad publicity. In recent years, such breaches were most notable with respect to 412(i) defined benefit plans, which are typically used by older professionals and small business owners with few employees to build a large nest egg in a short space of time.