What are the advantages of a 412 Split Funded Defined Benefit Plan insurance contract plan over a traditional defined benefit plan?
• Does not require an enrolled actuary; • Is not subject to the full funding limitation tests of a defined benefit plan; • Is required to use the contract guarantees as funding assumptions, thus shielding them from IRS attack as unreasonable funding assumptions; • Can be designed to eliminate the potential of excess plan assets that, in a traditional plan, would be subject to taxes and penalties of 80% or more upon termination of the plan; • Produces an understandable accrued benefit since it is simply the cash value of the contracts funding the participants account; • Creates larger initial deductions than a traditional plan since the funding assumptions are required to be much more conservative; and • Provides retirement benefits that are guaranteed by the insurance company and not just the financial strength of the particular employer providing the plan.
