87. Treatment of insurance dividends and other credits, fully-insured plans

Statement of Requirement: Treas. Reg. 1.404(a)-8; Rev. Rul. 60-33

Document Provision: _____

(Note to reviewer: All IRC 412(e)(3) plans (whether trusteed or non-trusteed) must include this provision. In addition, all non-trusteed plans funded only with insurance contracts must include this provision.)

Sample Plan Language:

No contract will be purchased under the plan unless such contract or a separate definite written agreement between the employer (or trustee, if any) and the insurer provides that:

(1) no value under contracts providing benefits under the plan or credits (on account of dividends, earnings or other experience rating credits, or surrender or cancellation credits) with respect to such contracts may be paid or returned to the employer or diverted to or used for purposes other than providing plan benefits for the exclusive benefit of employees or their beneficiaries;

(2) any contribution made by the employer because of a mistake of fact must be returned to the employer within one year of the contribution;

(3) any credits on account of dividends, earnings or other experience rating credits, or surrender or cancellation credits with respect to contracts under the plan shall be applied by the insurer toward each premium next due for contracts under the plan before any further contributions made by the employer are so applied by the insurer, and not later than the due date for such premiums;

(4) any credits on account of dividends, earnings or other experience rating credits, or surrender or cancellation credits in excess of plan benefits with respect to contracts distributed to provide plan benefits, will be applied as provided in (3), above;

(5) if upon the cessation of benefit accruals or upon plan termination, all benefits provided under the plan with respect to service before cessation of accruals or termination have been purchased, any credits on account of dividends, earnings or other experience rating credits, or surrender or cancellation credits with respect to contracts under the plan will revert to the employer; and,

(6) where credits are applied by the insurer before employer contributions are made that are sufficient in addition to the credits to pay each premium next due, such credits will be applied proportionately toward each premium next due so that the same percentage of

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each premium next due is paid.