3833 / To what extent can a money purchase pension plan provide life or health insurance benefits for its participants?

Where life insurance is purchased on the lives of participants in a money purchase pension plan, the 25 percent rule is applied in basically the same way as if the plan were a profit sharing plan ( Q 3830 and Q 3831). The incidental limitation applies regardless of whether the plan provides that funds used to purchase insurance must have been accumulated for at least two years.¹

In a plan funded by a combination of life insurance and a side fund, if the 25 percent requirement is met with respect to the premiums, the plan may provide for a death benefit consisting of both the face amount of the insurance and the amount credited to the participant’s account at death.²