How will the plan participants be affected?
A.4 Under the settlement initiative, the fair market value of the distributed contracts must be included in the applicable participant’s income with the sum of the premiums paid on the contracts being treated as the fair market value for this purpose. The distribution to the participant will be treated as a distribution from a nonqualified plan for purposes of IRC Sections 72 and 402. Thus, for example, participants cannot roll over distributions of the contracts to another retirement plan or to an IRA. The Service will not execute a closing agreement for this transaction pursuant to this settlement initiative unless both the employer and the plan participant elect to participate in the settlement agreement.
