3813 / What requirements must a fully insured plan (a “412(i) plan”) meet to be exempt from the minimum funding requirements?

A fully insured plan, known as a “Section 412(i) plan” or a “412(e)(3) plan” and governed by IRC Section 412(e)(3), is a defined benefit plan that is funded entirely by a combination of life insurance and annuity contracts. This plan can avoid the funding requirements and certain reporting requirements of other defined benefit plans or plans when certain requirements are met initially and annually:

(1)  The plan must be funded exclusively with individual insurance or annuity contracts (or a combination of both);

(2)  The contracts must provide for payment of level annual or more frequent premiums over a period ending no later than the normal retirement age of each participant, or the date when the participant ceases participation in the plan, if earlier, and beginning on the date (or the first payment date occurring thereafter) when the individual became a participant, or the time an increase in benefits became effective;

(3)  The benefits provided each individual under the terms of the plan must equal the benefits provided under each contract at normal retirement age and must be guaranteed by an insurance carrier to the extent premiums have been paid;