We still hear concern from employers and advisors concerning fully insured (412(e)) retirement plans. For a while, there was speculation that the IRS would take an active role in such plans. This expectation was initiated back in 2003 at the meeting of the American Society of Pension Actuaries. At that time, government panelists indicated the Service had a sense of urgency for providing guidance on “abusive” and “misused” 412(e) plans (then called 412(i) plans).
Unfortunately, some have misinterpreted these remarks as indicating that the IRS would be clamping down on all 412(e) plans. The IRS did take a deliberate role in preventing abuse during roughly 2005-2010. However, we witnessed no general shut down. Instead, those using conventional approaches have enjoyed a level playing field once abusive practices were put in check.
This means that employers and their advisors should choose products and administrators carefully. In fact, the informal remarks made at the ASPA meeting may have achieved their intended effect, since some insurers and advisors, alike, have become more conventional in their approaches (or at least less vocal about their aggressiveness.) Others have left the marketplace altogether.
The result? You should be careful when reviewing the history of fully insured plans. Be sure to put it in context.
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