52. Incidental insurance provisions and definitely determinable retirement benefits

Statement of Requirement: Treas. Reg. § 1.401-1(b)(1)(i); Rev. Rul. 60-83, Rev. Rul. 74-307, Rev. Rul. 83-53, Rev. Rul. 85-15

Document Provision: _____

(Note to reviewer: The following sample language is an example of an incidental preretirement death benefit which is definitely determinable. A preretirement death benefit paid in the form of a qualified preretirement survivor annuity is deemed incidental and is, therefore, always permitted; however, if death benefits are paid in a form other than or in addition to the qualified preretirement survivor annuity, such benefits must be incidental to the retirement purpose of the plan. See Rev. Rul. 85-15.)

294 | Defined Benefit Plan LRM Package 08/2020 06/2026

Sample Plan Language:

The death benefit payable under this plan will be a qualified preretirement survivor annuity and, if applicable, any other additional incidental death benefit as selected by the employer in the adoption agreement.

Sample Adoption Agreement Language:

The preretirement death benefit payable under this plan is (select one of the following options):

A. ( ) None, other than the qualified preretirement survivor annuity.

B. ( ) The qualified preretirement survivor annuity plus the proceeds of insurance policies

purchased on the participant’s life; provided that any death benefit in addition to the qualified preretirement survivor annuity shall be reduced to the extent necessary so that the sum of such additional benefit and the present value of the qualified preretirement survivor annuity does not exceed 100 times the participant’s anticipated monthly benefit. For purpose of this requirement, the total face amount of policies purchased will be ____ (fill in the amount but not in excess of 100) times the participant’s anticipated monthly benefit.

C. ( ) The qualified preretirement survivor annuity plus the excess, if any, of the present

value of the participant’s accrued benefit minus the present value of the qualified preretirement survivor annuity.

D. ( ) The qualified preretirement survivor annuity plus, if a positive amount, the incidental

reserve. The incidental reserve equals the proceeds of insurance policies purchased on a participant’s life plus the theoretical ILP reserve minus the sum of the present value of the qualified preretirement survivor annuity and the cash value of the policies purchased. For purpose of this requirement, the face amount of the insurance policies will be that purchasable by _____% (fill in the amount but not greater than 66% if whole life and not greater than 33% if term and/or universal life) of the theoretical contribution.

For purposes of D above, the following definitions apply:

Theoretical ILP reserve is the reserve that would be available at the time of death if for each year of plan participation a contribution had been made on behalf of the participant in an amount equal to the theoretical contribution.

Theoretical contribution is the contribution that would be made on behalf of the participant, using the individual level premium funding method from the age at which participation commenced to normal retirement age, to fund the participant’s entire retirement benefit without regard to preretirement ancillary benefits. The entire retirement benefit for this purpose is based upon a straight life annuity and assumes continuation of current salary (no salary scale).

For purposes of B, C, and D above, the calculations for present value of any benefit shall be determined in accordance with section _____ of the plan.

(Note to reviewer: The blank should be filled in with the plan section number corresponding to LRM #42.)

295 | Defined Benefit Plan LRM Package 08/2020 06/2026