[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.412(i)-1]

[Page 670-672]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.412(i)-1  Certain insurance contract plans.

    (a) In general. Under section 412(h)(2) of the Internal Revenue Code 
of 1954, as added by section 1013(a) of the Employee Retirement Income 
Security Act of 1974 (88 Stat. 914) (hereinafter referred to as ``the 
Act''), an insurance contract plan described in section 412(i) for a 
plan year is not subject to the minimum funding requirements of section 
412 for that plan year. Consequently, if an individual or group 
insurance contract plan satisfies all of the requirements of paragraph 
(b)(2) or (c)(2) of this section, whichever are applicable, for the plan 
year, the plan is not subject to the requirements of section 412 for 
that plan year. The effective date for section 412 of the Code is 
determined under section 1017 of the Act. In general, in the case of a 
plan which was not in existence on January 1, 1974, this section applies 
for plan years beginning after September 2, 1974, and in the case of a 
plan in existence on January 1, 1974, to plan years beginning after 
December 31, 1975.
    (b) Individual insurance contract plans. (1) An individual insurance 
contract plan is described in section 412(i) during a plan year if the 
plan satisfies the requirements of paragraph (b)(2) of this section for 
the plan year.
    (2) The requirements of this paragraph are:
    (i) The plan must be funded exclusively by the purchase from an 
insurance company or companies (licensed under the law of a State or the 
District of Columbia to do business with the plan) of individual annuity 
or individual insurance contracts, or a combination thereof. The 
purchase may be made either directly by the employer or through the use 
of a custodial account or trust. A plan shall not be considered to be 
funded otherwise than exclusively by the purchase of individual annuity 
or individual insurance contracts merely because the employer makes a 
payment necessary to comply with the provisions of section 411(c)(2) 
(relating to accrued benefit from employee contributions).
    (ii) The individual annuity or individual insurance contracts issued 
under the plan must provide for level annual, or more frequent, premium 
payments to be paid under the plan for the period commencing with the 
date each individual participating in the plan became a participant and 
ending

[[Page 671]]

not later than the normal retirement age for that individual or, if 
earlier, the date the individual ceases his participation in the plan. 
Premium payments may be considered to be level even though items such as 
experience gains and dividends are applied against premiums. In the case 
of an increase in benefits, the contracts must provide for level annual 
payments with respect to such increase to be paid for the period 
commencing at the time the increase becomes effective. If payment 
commences on the first payment date under the contract occurring after 
the date an individual becomes a participant or after the effective date 
of an increase in benefits, the requirements of this subdivision will be 
satisfied even though payment does not commence on the date on which the 
individual's participation commenced or on the effective date of the 
benefit increase, whichever is applicable. If an individual accrues 
benefits after his normal retirement age, the requirements of this 
subdivision are satisfied if payment is made at the time such benefits 
accrue. If the provisions required by this subdivision are set forth in 
a separate agreement with the issuer of the individual contracts, they 
need not be included in the individual contracts.
    (iii) The benefits provided by the plan for each individual 
participant must be equal to the benefits provided under his individual 
contracts at his normal retirement age under the plan provisions.
    (iv) The benefits provided by the plan for each individual 
participant must be guaranteed by the life insurance company, described 
in paragraph (b)(2)(i) of this section, issuing the individual contracts 
to the extent premiums have been paid.
    (v) Except as provided in the following sentence, all premiums 
payable for the plan year, and for all prior plan years, under the 
insurance or annuity contracts must have been paid before lapse. If the 
lapse has occurred during the plan year, the requirements of this 
subdivision will be considered to have been met if reinstatement of the 
insurance policy, under which the individual insurance contracts are 
issued, occurs during the year of the lapse and before distribution is 
made or benefits commence to any participant whose benefits are reduced 
because of the lapse.
    (vi) No rights under the individual contracts may have been subject 
to a security interest at any time during the plan year. This 
subdivision shall not apply to contracts which have been distributed to 
participants if the security interest is created after the date of 
distribution.
    (vii) No policy loans, including loans to individual participants, 
on any of the individual contracts may be outstanding at any time during 
the plan year. This subdivision shall not apply to contracts which have 
been distributed to participants if the loan is made after the date of 
distribution. An application of funds by the issuer to pay premiums due 
under the contracts shall be deemed not to be a policy loan if the 
amount of the funds so applied, and interest thereon, is repaid during 
the plan year in which the funds are applied and before distribution is 
made or benefits commence to any participant whose benefits are reduced 
because of such application.
    (c) Group insurance contract plans. (1) A group insurance contract 
plan is described in section 412(i) during a plan year if the plan 
satisfies the requirements of subparagraph (2) for the plan year.
    (2) The requirements of this subparagraph are:
    (i) The plan must be funded exclusively by the purchase from an 
insurance company or companies, described in paragraph (b)(2)(i) of this 
section, of group annuity or group insurance contracts, or a combination 
thereof. The purchase may be made either directly by the employer or 
through the use of a custodial account or trust. A plan shall not be 
considered to be funded otherwise than exclusively by the purchase of 
group annuity or group insurance contracts merely because the employer 
makes a payment necessary to comply with the provisions of section 411 
(c)(2) (relating to accrued benefit derived from employee 
contributions).
    (ii) In the case of a plan funded by a group insurance contract or a 
group annuity contract the requirements of paragraph (b)(2)(ii) of this 
section must be satisfied by the group contract

[[Page 672]]

issued under the plan. Thus, for example, each individual participant's 
benefits under the group contract must be provided for by level annual, 
or more frequent, payments equivalent to the payments required to 
satisfy such paragraph. The requirements of this subdivision will not be 
satisfied if benefits for any individual are not provided for by level 
payments made on his behalf under the group contract.
    (iii) The group annuity or group insurance contract must satisfy the 
requirements of clauses (iii), (iv), (v), (vi), and (vii) of paragraph 
(b)(2). Thus, for example, each participant's benefits provided by the 
plan must be equal to his benefits provided under the group contract at 
his normal retirement age.
    (iv)(A) If the plan is funded by a group annuity contract, the value 
of the benefits guaranteed by the insurance company issuing the contract 
under the plan with respect to each participant under the contract must 
not be less than the value of such benefits which the cash surrender 
value would provide for that participant under any individual annuity 
contract plan satisfying the requirements of paragraph (b) and approved 
for sale in the State where the principal office of the plan is located.
    (B) If the plan is funded by a group insurance contract, the value 
of the benefits guaranteed by the insurance company issuing the contract 
under the plan with respect to each participate under the contract must 
not be less than the value of such benefits which the cash surrender 
value would provide for that participant under any individual insurance 
contract plan satisfying the requirements of paragraph (b) and approved 
for sale in the State where the principal office of the plan is located.
    (v) Under the group annuity or group insurance contract, premiums or 
other consideration received by the insurance company (and, if a 
custodial account or trust is used, the custodian or trustee thereof) 
must be allocated to purchase individual benefits for participants under 
the plan. A plan which maintains unallocated funds in an auxiliary trust 
fund or which provides that an insurance company will maintain 
unallocated funds in a separate account, such as a group deposit 
administration contract, does not satisfy the requirements of this 
subdivision.
    (d) Combination of plans. A plan which is funded by a combination of 
individual contracts and a group contract shall be treated as a plan 
described in section 412 (i) for the plan year if the combination, in 
the aggregate, satisfies the requirements of this section for the plan 
year.

[T.D. 7746, 45 FR 47676, July 16, 1980; 45 FR 50563, July 30, 1980]0