412i Pension Plan Recovery
Have you been hurt by a 412i Defined Benefit Plan?
Many small business owners have opened pension plans under the Internal Revenue code 412i. These plans have typically been sold by insurance agents, financial advisors, brokers and pension administrators. These plans have been referred to as the following:
- 412i plan
- Defined benefit plan
- 412i retirement plan
- 412i pension plan
- 412i defined benefit plan
- Fully Insured plan
- Super Charged IRA
- And other creative titles
Some of the many benefits the business owners were told they would receive:
- Substantial tax deductions
- Tax-free access to some/all of the funds
- Tax-advantaged distribution of life insurance policies
- Exclusion of employees
In reality what has transpired in relation to 412i defined benefit plans is that the IRS has challenged these plans. The Treasury rewrote legislation effectively wiping out the promised tax benefits of these plans, and participants have lost substantial monies in the insurance products used. Some of the specific problems that have arisen from these abusive plans include:
- Mandatory funding of life insurance policies
- Excessive surrender charges in the insurance products
- Substantial loss of plan assets if plan is not continually funded
- Lack of funding flexibility was not disclosed
- Exorbitant fees for life insurance death benefits
- Changes in the tax code affecting allowable contributions
- Too much life insurance death benefit in plan
- Mandatory requirement to file form 8886 for Listed Transactions with the IRS
- Companies being audited because of participation in 412i plans
- IRS disallowing contributions
- Taxpayer having to re-file past tax returns because of disallowed deductions for 412i plan participation
- Non-responsive plan Administrators
- Non-responsive insurance salespeople
- Non-responsive insurance carriers
You do have options to recover money, close plans, get surrender charges waived, file complaints, negotiate with insurance companies, and negotiate with the IRS.
If any of these issues are affecting you get in touch with one of our consultants to find out what your options are. info@proplanusa.com 800-731-8122
More information regarding abusive 412i defined benefit plans and your options
We have found that many of these plans were sold by a handful of plan Administrators, using insurance agents and a small number of Insurers who marketed an insurance policy specifically for the 412i plan market. In some cases, the commission on the insurance products was 100% of the deposit. False claims were made regarding the appropriate design of these plans by the Administrators. Many Administrators received commissions on the sales of the insurance products.
The insurance policies sold were primarily a type of whole life product that used suppressed cash values. This meant that there was excessive surrender charges applied in the first 5 to 10 years of the policy so as to provide a tax benefit to the buyer when the policy was purchased from the 412i defined benefit plan. A similar policy design had already been abolished by the Service years prior. The term Springing Cash Value came from this earlier design. In order to incent people to buy these policies the tax benefits were the sole focus instead of the excessive costs, huge surrender charges and lack of funding flexibility.
The abuses of the 412i plan grew so large so fast that the Internal Revenue Service and the Treasury rewrote several regulations affecting these plans and then made them a target to be reviewed by making them a Listed Transaction.
See:
- http://www.irs.gov/pub/irs-utl/rr-04-20.pdf
- http://www.irs.gov/pub/irs-utl/rr-04-21.pdf
- http://www.irs.gov/pub/irs-utl/402reg.pdf
- http://www.irs.gov/pub/irs-utl/rp-04-16.pdf
- http://www.irs.gov/pub/irs-utl/ir-04-021.pdf
Below are more examples of abusive 412i defined benefit plans:
Real Case #1: In one case we represented, we found that of the $260,000.00 annual contribution, $180,000.00 was going to insurance costs. To compound the issue, the insurance agent who sold the plan did not inform the business owner that the plan must be funded every year or the insurance policy would lapse. Because of suitability issues, we were able to recover 100% for client.
Real Case #2: In another case we represented, the business owner—being in a volatile industry—lost his primary contract and was forced to close his business. Being in the third year of his 412i plan, the insurance policy had a cash value of $600,000.00+; however, because of excessive surrender charges, his net cash after surrender penalties was $60,000.00. We were able to negotiate with the insurance company for an additional $300,000.00 restored to the participant. Further action is pending.
Real Case #3: In yet another case, the taxpayer was audited by the IRS and found to have exceeded the allowable insurance amount within the plan. He was being forced to restate three years worth of income. This all due to the design of the plan by the plan administrator, who incidentally, participated in the commissions paid on the insurance products used in the plan.
The net affect of agents, brokers, Administrators and insurers claiming “no responsibility” is that the 412i plan participants have suffered substantial financial loss. If you adopted a 412i plan and have experienced problems with your participation we may be able to help. We have successfully helped our clients recover substantial monies, satisfy the IRS, and close out such plans. We may be able to help you as well. Please contact us to discuss your specific situation.
800-731-8122
5830 Oberlin Drive, Suite 304
San Diego, CA 92121
Phone: 800-731-8122
info@proplanusa.com