Frequently Asked Questions

Q. What happens to the nonvested contributions to the Fully Insured Defined Benefit Plan that are forfeited by the plan participants?
A. In a Fully Insured Defined Benefit Plan, forfeitures are used to reduce future employer contributions.

Q. How does the plan participant designate a plan beneficiary?
A. At retirement, the normal form of payment for a married participant is a joint and survivor annuity with the spouse as beneficiary, called a qualified joint and survivor annuity (QJSA). Before retirement, the spouse of a vested participant has the right to be covered for a qualified pre-retirement survivor annuity (QPSA). In the event of the participant's death before retirement, the QPSA pays the spouse an annuity based on the amount of the participant's accrued benefit. The spouse may waive the right to receive a QJSA or QPSA. The plan administrator will provide each participant a beneficiary designation form. The completed forms signed by the participant and spouse will be maintained by the plan administrator. Insurance proceeds in excess of the amount needed to fund the QPSA will be paid to the beneficiary designated by the participant.

Q. How are new employees added to the plan after the inception date?
A. There is no specific procedure. However, Title I of ERISA requires that the plan administrator furnish a summary plan description to an individual within 90 days after he or she becomes a participant in the plan. The summary plan description must contain information required under ERISA 102(a)(1).

Q. Must rank and file employees be covered by an insurance policy?
A. The plan will have a practical minimum insurance policy. Generally, the insurance coverage must be provided on a non-discriminatory basis.

Q. Can the plan be invested solely in annuities or solely in insurance?
A. A plan may be invested in annuities. The incidental benefit rule limits insurance to about half the total contribution.

Q. How do employer contributions for Social Security affect funding for a Fully Insured Defined Benefit Plan?
A. As a percent of pre-retirement earnings, Social Security pays more to lower paid employees. To restore balance, the Fully Insured Defined Benefit Plan benefit formula may provide more to highly paid employees.

Q. How do employer contributions to a 401(k) plan affect funding of a Fully Insured Defined Benefit Plan, and vice versa?
A. It depends. Employer contributions to a 401(k) plan on behalf of rank and file employees may reduce the required employer contribution to the Fully Insured Defined Benefit Plan. Employer contributions to a 401(k) plan may be recognized in the benefit calculation in the Fully Insured Defined Benefit Plan. If there is overlapping participation between a Fully Insured Defined Benefit Plan and a defined contribution plan, the employer deductions for the defined contribution plan may be limited.

Q. What if an employee works 1000 hours one year and fewer hours the next year?
A. You may have a break in service  which will affect the contributions and vesting of the plan participant. For example, IRC section 411(a)(6)(C) states that in the case of a participant who incurs five consecutive one year breaks in service a plan can provide that years of service after that break will not be counted for purposes of determining the vested percentage of his or her account balances before the break..

Q. How is the disability benefit calculated? Does vesting affect this calculation? A. The disability benefit is the value of the annuity and cash value of the policy added together to purchase a single life annuity. The amount vested will be used if the employee is separated from service or the account balance will be used if the employee is a plan participant.

Q. Can an employer sponsor both a 401(k) plan and a Fully Insured Defined Benefit Plan?
A. An employer can sponsor both a 401(k) plan and a Fully Insured Defined Benefit Plan. If there is overlapping participation between the plans, deductions for employer profit sharing and matching contributions to the 401(k) plan may be limited.

Q. What if there is a change in ownership in the company during the funding period or after the funding and before distribution?
A. The parties to the transaction will have flexibility in dealing with the Fully Insured Defined Benefit Plan. It will be important to include the plan and other employee benefits in planning for the change. The seller can continue the plan, spin off part of the plan, freeze accruals, terminate it or transfer sponsorship to the new owners. Unlike a traditional defined benefit plan, in a Fully Insured Defined Benefit Plan, there will be no unfunded liability. The purchaser should consider the value of the plan to key employees he wants to retain. The plan participants' benefits will not be increased or reduced by the change. If there is a plan termination or spin-off some participants may become fully vested.

Q. Is there an additional contribution and tax savings advantage for a 100% business owner to change the ownership to 50-50 with a spouse to enable a greater contribution level?
A. No. Ownership change will not matter as to plan contributions; however, if the spouse becomes an employee of the company, a greater contribution can be made to both parties as of Jan.1, 2000.

Q. Does the attorney draft the documents based upon a preliminary plan design?
A. Yes.

Q. Can this change with the final design?
A. Yes.

Q. When do you file for a determination letter?
A. We work with volume submitter documents that have already received favorable determination letters. We submit the facts about the new plan under the Internal Revenue Service volume submitter program. The submission is filed after the underwriting is completed and the plan provisions set.

Q. What paperwork will the insurance company receive?
A. It depends upon their request.

Q. What paperwork will the client receive?
A. The client will receive the following paperwork:



Q. What paperwork will the Financial Advisor receive?
A. The insurance contract and the annuity contract.






Executive Benefits Design Group
4164 Meridian Street, Suite 400
Bellingham, Washington 98226
Tel: 360.756.0776  Fax: 360.756.9033


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