notes / updates on 412(i) pension plans

Following is an unformatted dump of research notes. For a few complete articles see

IRS code:  links to applicable Revenue Rulings

1_412e3 – Beyond the Basics.ppt downloaded MassMutual powerpoint presentation

Requirements for “Separate Agreements” for §412(i) Pension Plans

This article discusses the information that must be included in the “separate agreements” between

plan sponsors and the insurance companies issuing individual insurance contracts that are used to

fund 412(i) pension plans. The IRS has received requests from practitioners to explain the

information needed for a 412(i) separate agreement to be acceptable to the IRS.

412(i) plans are pension plans funded exclusively by the purchase of life insurance and annuity

contracts. They are not subject to the funding rules that apply to other defined benefit plans if they

meet all of the requirements of section 412(i) of the tax code and satisfy relevant IRS guidance.

IRS regulations (§1.412(i)-1(b)(2)(ii)) issued under this Code section sets forth the timing, amount,

and duration of contract premium payments, provisions of which must be in the contracts

themselves, or alternatively, in a “separate agreement” with the issuer of the individual contracts.

If a separate agreement is used, it must be executed between the plan sponsor and the contract

issuer at plan inception and amended (or a new separate agreement must be entered into) each

time the plan adds a participant or whenever a participant receives a benefit increase.

Separate agreements containing the information in Part A (see below) will be considered

acceptable by the IRS, if the reconciliation record described in Part B is also maintained by the plan


A.  Required Data for Each Participant Whose Benefits are Funded under


Contracts to which the Separate Agreement Applies


1.          Participant’s name, social security number, date of birth, date of hire, and date of participation

in the plan.

2.         For each contract funding benefits for this participant:

a.         Form number, contract number, and issue date of the contract.

b.         The dollar amount of the level premium, premium frequency (e.g., monthly, annual),

premium payment period (e.g., 10 years, to normal retirement age), the due date or

payment date of the first required premium, and the due date of each subsequent

premium (e.g., first day of each month).  (Note:  All requirements of

§1.412(i)-1(b)(2)(ii) concerning premium payment dates must be satisfied.)

c.         The projected guaranteed annuity benefits provided by the contract (under the

normal form at the participant’s normal retirement age), assuming that premiums are

paid in accordance with the separate agreement.

d.         A list of all optional forms of payment provided under the contract and the actuarial

factors used to derive each optional form at the participant’s normal retirement age.

B.         Required Reconciliation

The plan sponsor must maintain records demonstrating that a plan’s projected annuity benefits at

normal retirement age under all forms of payment are equal in form and amount to the projected

guaranteed annuity benefits at normal retirement age under all forms provided by all contract(s)

that fund a participant’s benefits (as shown in all separate agreements relating to an individual

participant. (NOTE: All payment forms and amounts under the contract(s) and the plan must be

identical at normal retirement age for the plan to satisfy the requirements of §412(i).)

For this purpose, the IRS allows the plan sponsor to reconcile the dollar amount of the normal

form of payment at the participant’s normal retirement age under the plan and the contract(s),

and then to demonstrate that the actuarial factors used to calculate all optional forms are

identical under the plan and all contracts used to fund the plan benefits. The reconciliation

information itself need not be part of the separate agreement(s) with the insurer(s).•  good brochure  book



Machine generated alternative text: Monthly
Starting Retirement
Plan at Age Benefit
40 $14.166
45 ___________
50 ___________
55 ___________
412(I) Funded with Life Insurance and AnnuIty
412(i) Funded with Annuity
Plan at Age
Lump Sum
Contribution (takes mio
account GATT)
40 SI-l IhI
45 I 
50 I-;ir i  — SI’: ?{I
55 ‘ Ir, , :‘-
‘. ‘-I’I I V.
Thy chirt rc f* illust:iiion purpt%l.t ,inIs mcl are not to be u.wd for funding. Actual cIntnbuIi(,nt mcl
bcncirs will bc calculated b»ed upon ,ndw,dual census data.
Lump Sum
SI 4,166
Contribution (lakes nb account GATij
Annuity Life Total
533,3361 539,356 $72,692
544,825 553,401 ,,,,,226
566.879 577• 149 5 144.D28
S 14,166
SI 13,540 j 5125,167
S130.0161 S135.I.34
S265. ISO


Screen clipping taken: 7/18/2012 4:51 AM


IRS audit results,,id=250681,00.html


Sample Doc


“Stay away from 419 and similar plans like Section 79 plans. Be very careful with 412i plans. Avoid most captive insurance plans. ”

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