What is a Fully Insured Plan?

A Fully Insured Pension Plan, also known as a Section 412(e)(3) plan, is only funded from life insurance policies or annuities. As opposed to traditional pensions that invest in various assets, the fully insured pension plan relies on these insurance contracts to guarantee the benefits and maintain stable and predictable funding.

Comparison with a Cash Balance Pension Plan

The cash balance pension plan has investments in market-based assets leading to its returns being influenced by market fluctuations. On the other hand, a fully insured plan offers guaranteed benefits through life insurance or annuity contracts making it more stable and predictable.

Pros:

• Insured Benefits: The benefits of this plan are ensured through an insurance policy.
• Consistent Financing: Premiums are known in advance.
• Tax Advantages: More conservative interest rates lead to larger initial tax deductions.
• Ease of Administration: Unburdened by some funding and reporting mandates.
• Solves Overfunding Issues: Helps plans with overfunding problems.

Cons:

• Higher Initial Costs: Needs greater first deposits.
• No Loans Allowed: Within any year, there cannot be any policy loans whatsoever.
• Must Be Fair: These must be non-discriminatory for all employees especially in regard to what they offer and some features their plans have or lack respectively.

Who Would Benefit and Why?

A Fully Insured Pension Plan is ideal for business owners who have few or no employees. This ensures that their retirement benefit is safe and predictable thus simplifying management of the plan and having substantial tax advantages associated with it. Most importantly this program would be of great help to individuals searching for certainty of funding that is reliable as well as resolving overfunding problems found within existing plans.