| (i) Certain insurance contract plans. —A plan is described in this subsection if— |
 |
(1) |
The plan is funded exclusively by the purchase of individual insurance contracts, |
|
(2) |
Such
contracts provide for level annual premium payments to be paid
extending not later than the retirement age for each individual
participating in the plan, and commencing with the date the individual
became a participant in the plan (or, in the case of an increase in
benefits, commencing at the time such increase becomes effective), |
|
(3) |
Benefits
provided by the plan are equal to the benefits provided under each
contract at normal retirement age under the plan and are guaranteed by
an insurance carrier (licensed under the laws of a State to do business
with the plan) to the extend premiums have been paid, |
|
(4) |
Premiums
payable for the plan year, and all prior plan years, under such
contracts have been paid before lapse or there is reinstatement of the
policy, |
|
(5) |
No rights under such contracts have been subject to a security interest at any time during the plan year, and |
|
(6) |
No policy loans are outstanding at any time during the plan year. |
| A plan funded exclusively by the
purchase of group insurance contracts which is determined under
regulations prescribed by the Secretary to have the same
characteristics as contracts described in the preceding sentence shall
be treated as a plan described in this subsection. |
| |
Regulations
Sec.
1.412(i)-1. Certain insurance contract plans. - (a) In general. Under
section 412(h)(2) of the Internal Revenue Code of 1954, as added by
section 1013(a) of the Employee Retirement Income Security Act of 1974
(88 Stat. 914) (hereinafter referred to as "the Act), an insurance
contract plan described in section 412(i) for a plan year is not
subject to the minimum funding requirements of section 412 for the plan
year. Consequently, if an individual or group insurance contract plan
satisfies all of the requirements of paragraph (b)(2) or (c)(2) of this
section, whichever are applicable, for the plan year, the plan is not
subject to the requirements of section 412 for that plan year. The
effective date for section 412 of the Code is determined under section
1017 of the Act. In general, in the case of a plan which was not in
existence on January 1, 1974, this section applies for plan years
beginning after September 2, 1974 and in the case of a plan in
existence on January 1, 1974, to plan years beginning after December
31, 1975. |
| (b) Individual insurance contract plans. |
| (1) |
An
individual insurance contract plan is described in section 412(i)
during a plan year if the plan satisfies the requirements of paragraph
(b)(2) of this section for the plan year. |
| (2) |
The requirements of this paragraph are: |
|
(i) |
The
plan must be funded exclusively by the purchase from an insurance
company or companies (licensed under the law of a State or the District
of Columbia to do business with the plan) of individual annuity or
individual insurance contracts, or a combination thereof. The purchase
may be made either directly by the employer or through the use of a
custodial account or trust. A plan shall not be considered to be funded
otherwise than exclusively by the purchase of individual annuity or
individual insurance contracts merely because the employer makes a
payment necessary to comply with the provisions of section 411(c)(2)
(relating to accrued benefit from employee contributions). |
|
(ii) |
The
individual annuity or individual insurance contracts issued under the
plan must provide for level annual, or more frequent, premium payments
to be applied under the plan for the period commencing with the date
each individual participating in the plan became a participant and
ending not later than the normal retirement age for that individual or,
if earlier, the date the individual ceases his participation in the
plan. Premium payments may be considered to be level even though items
such as experience gains and dividends are applied against premiums. In
the case of an increase in benefits, the contracts must provide for
level payments with respect to such increase to be paid for the period
commencing at the time the increase becomes effective. If payment
commences on the first payment date under the contract occurring after
the date an individual becomes a participant or after the effective
date of an increase in benefits, the requirements of this subdivision
will be satisfied even though payment does not commence on the date on
which the individual's participation commenced or on the effective date
of the benefit increase, whichever is applicable. If an individual
accrues benefits after his normal retirement age, the requirements of
this subdivision are satisfied if payment is made at the time such
benefits accrue. If the provisions required by this subdivision are set
forth in a separate agreement with the issuer of the individual
contracts, they need not be included in the individual contracts. |
|
(iii) |
The
benefits provided by the plan for each individual participant must be
equal to the benefits provided under his individual contracts at his
normal retirement age under the plan provisions. |
|
(iv) |
The
benefits provided by the plan for each individual participant must be
guaranteed by the life insurance company described in paragraph
(b)(2)(i) of this section, issuing the individual contracts to the
extent premiums have been paid. |
|
(v) |
Except
as provided in the following sentence, all premiums payable for the
plan year, and for all prior plan years, under the insurance or annuity
contracts must have been paid before lapse. If the lapse has occurred
during the plan year, the requirements of this subdivision will be
considered to have been met if reinstatement of the insurance policy,
under which the individual insurance contracts are issued, occurs
during the year of the lapse and before the distribution is made or
benefits commence to any participant whose benefits are reduced because
of the lapse. |
|
(vi) |
No
rights under the individual contracts may have been subject to a
security interest at any time during the plan year. This subdivision
shall not apply to contracts which have been distributed to
participants if the security interest is created after the date of
distribution. |
|
(vii) |
No
policy loans, including loans to individual participants, on any of the
individual contracts may be outstanding at any time during the plan
year. This subdivision shall not apply to contracts which have been
distributed to participants if the loan is made after the date of
distribution. An application of funds by the issuer to pay premiums due
under the contracts shall be deemed not to be a policy loan if the
amount of the funds so applied, and interest thereon, is repaid during
the plan year in which the funds are applied and before distribution is
made or benefits commence to any participant whose benefits are reduced
because of such application. |
| (c) Group insurance contract plans. (1)
A group insurance contract plan is described in section 412(i) during a
plan year if the plan satisfies the requirements of subparagraph (2)
for the plan year. |
| (2) |
The requirements of this subparagraph are: |
|
(i) |
The
plan must be funded exclusively by the purchase from an insurance
company or companies, described in paragraph (b)(2)(i) of this section,
of group annuity or group insurance contracts, or a combination
thereof. The purchase may be made either directly by the employer or
through the use of a custodial account or trust. A plan shall not be
considered to be funded otherwise than exclusively by the purchase of
group annuity or group insurance contracts merely because the employer
makes a payment necessary to comply with the provisions of section
411(c)(2) (relating to accrued benefit derived from employee
contributions). |
|
(ii) |
In
the case of a plan funded by a group insurance contract or a group
annuity contract the requirements of paragraph (b)(2)(ii) of this
section must be satisfied by the group contract issued under the plan.
Thus, for example, each individual participant's benefits under the
group contract must be provided for by level annual, or more frequent
payments equivalent to the payments required to satisfy such paragraph.
The requirements of this subdivision will not be satisfied if benefits
for any individual are not provided for by level payments made on his
behalf under the group contract. |
|
(iii) |
The
group annuity or group insurance contract must satisfy the requirements
of clauses (iii), (iv), (v), (vi), and (vii) of paragraph (b)(2). Thus,
for example, each participant's benefits provided by the plan must be
equal to his benefits provided under the group contract at his normal
retirement age. |
