FAQ 849: Insured Death Benefit Funding under PPA

Problem: How do I include the cost of the death benefit in a plan with life insurance?

Solution: Under PPA, you cannot add a term cost for funding the insured death benefit in a pension plan. Instead, you should do the following: Unless insurance is being issued for the first time, enter existing insurance face amounts in the employee records in the prior face amount fields. Prior premiums and current cash value amounts may also be entered. On the DEATHBEN screen, code the correct death benefit at the top and code the Pre-Retirement Survivor's benefit as REA J&S 50% and Charge for Benefit = 3- Free in Addition to the Death Benefit. Make sure the ANCILELG screen is coded the same as Normal Retirement for the Pre-Retirement J&S eligibility. If new insurance is being calculated, enter an insurance table on the INSUR screen. On the INSURLIM screen, enter 2- Ignore Cost of Insurance in the Account for Insurance in Funding field. On the FUNDMETH screen, code Use Multiple Decrement Funding Method "Yes", and Funding of Death Benefit "3-Method Used". On the PPAFASMP screen, enter PPA pre-retirement mortality tables that are acceptable for the plan year being valued. Please note that the IRS has indicated that an assumption of no pre-retirement mortality is valid for some small plans. If no pre-retirement mortality is assumed, no cost for the death benefit will be included. On the CONTRIB screen, as under the previously acceptable envelope funding method, the current policy cash values should be added to the assets. The cost of the death benefit will then be included in the funding target and the target normal cost. It will not be illustrated as a separate charge in the reports. In the participant's Costs/Values screen, you will see the total death benefit cost as the last item under "PV of EOY Accrued Benefit."