Employees and business owners alike face the challenge of accumulating sufficient assets to provide for their needs in retirement. They often turn to qualified retirement plans (or “Qualified Plans”) as a tax efficient means of providing retirement benefits. But employees and business owners face another problem: What happens to their families if they die before reaching retirement age? Death benefit coverage provides for family members what retirement savings give to employees and owners. And so employees and business owners often ask: Would it be more efficient to provide death benefit protection using the same dollars being used to provide retirement benefits? If so, can money which is contributed to Qualified Plans be used to purchase life insurance? Qualified pensions and profit-sharing plans were created by Congress to help employees accumulate assets for retirement and provide certain tax advantages for contributions made by employers. Qualified Plans are subject to significant rules and regulations under the Internal Revenue Code (“IRC”) as well as to all of the complexities of the Employee Retirement Income Security Act of 1974 (“ERISA”).

For example, Qualified Plans are subject to reporting and disclosure requirements, vesting and participation requirements, funding requirements, fiduciary responsibilities, and administration and enforcement requirements.

Thus, when considering what investments to use in a Qualified Plan, employers and plan participants should seek advice from tax or legal counsel, or seek the services of a third-party administrator (“TPA”).

Those considering the purchase of life insurance within a Qualified Plan must understand the “incidental benefit” limitations for various types of plan designs, ERISA and labor law limitations for purchasing life insurance in Qualified Plans, the tax treatment of life insurance protection while participating in a plan, the tax treatment of death benefits when paid out, and the options for continuing life insurance coverage at retirement.