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Provide Guaranteed Retirement Benefits With a 412(e)(3) Fully Insured Defined Benefit Plan

A fully insured defined benefit plan is a retirement plan that provides guaranteed retirement benefits to the owners and employees of a company. As with all defined benefit plans, the employer makes annual contributions to the plan to reach a funding target.

These plans are funded exclusively with annuities or a combination of annuities and whole life insurance to create a guaranteed retirement income benefit.

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How a 412(e)(3) Fully Insured Defined Benefit Plan Works

  • The plan’s annual contribution is determined by using a formula to obtain a guaranteed lump sum amount that will be sufficient to provide a desired monthly income at retirement. 
  • The monthly retirement benefit is based on an employee’s compensation and years of service and can be impacted by IRS-determined limitations that may change annually. 
llic small business plans advantages

Advantages of a 412(e)(3) Defined Benefit Plan

  • Tax deductions for your business
  • Retirement benefits are guaranteed, provided annual funding is made
  • Can help attract and retain employees
  • Typically allows for the highest contribution amounts compared to other defined benefit plans
  • Larger contributions allowed for older participants
  • Investment risk rests with the insurance company, not the employer
  • Income tax advantage at death
  • Portable: The employee’s vested benefit is paid at termination or retirement.
llic small business plans considerations

Points to Consider About a 412(e)(3) Defined Benefit Plan

  • Annual level premiums are required.
  • Adequate cash flow is necessary to fund the contribution.
  • Employee demographics impact the contribution. These plans are best suited for owner only (owner/spouse) and partners (partners/spouses) business entities.
  • Participant loans are not permitted.
412e3 defined benefit plan

What You Need to Know About a 412(e)(3) Fully Insured Defined Benefit Plan

Read through our information guide to get all the details about 412(e)(3) Defined Benefit Plans.

412(e)(3) Defined Benefit Plan Information Guide (PDF)
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IMPORTANT DISCLOSURES
The Lafayette Life Insurance Company does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Lafayette Life cannot guarantee that the information herein is accurate, complete, or timely Lafayette Life makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Please consult an attorney or tax professional regarding your specific situation.
 
The Lafayette Life Insurance Company provides services to pension plans as outlined in a separate Administrative Services Agreement, and issues life insurance and annuity products that may be used as funding options. This material is for informational purposes only. Lafayette Life does not serve as plan administrator or fiduciary, nor does Lafayette Life or its representatives provide ERISA, legal or tax advice. Your personal or legal tax advisors should always be consulted and relied upon for advice.

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