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Section 79 GEAR
412(i) Defined Benefit
Retirement Plans

FREQUENTLY ASKED QUESTIONS
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FEASIBILITY STUDY
412(i) BASICS defined benefit retirement plans 412(i), asset protection planning, qualified pension plans, charitable solutions, support organizations, family limited partnerships, stretch ira, dynasty trusts 412(i) FAQ SECTION 79
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Defined Benefit Plan

What is Section 79 GEAR?

Section 79 GEAR is a superior employee benefit plan of group term life insurance.

What sets Section 79 GEAR apart from other group term arrangements is the opportunity for covered employees to receive entry-age conversion rights based on the date they were hired.

The convenience and cost-effectiveness of group term life insurance coupled with the entry-age conversion feature serve to create one of the most powerful and unique employee benefits available in the marketplace.
Advantages of Section 79 Gear on Life Insurance Premiums for a 412i Defined Benefit Plan

What can Section 79 GEAR do for my business?

For the successful business, Section 79 GEAR can provide innovative solutions to several complex problems:
  • How can my business successfully fund life insurance utilizing tax-deductible* dollars?
  • How can my business ensure convertibility to affordable post-retirement life insurance protection?
  • How can my business provide significant levels of life insurance for estate and business solvency planning?

How does Section 79 GEAR work?

Installing a Section 79 GEAR plan is easy.
  1. Employers join the Section 79 GEAR Master Trust by executing a board resolution and a set of plan documents. These documents include a master group term life insurance policy that details the benefit structure selected by the employer. The death benefit amounts are based upon a nondiscriminatory formula set by IRS regulators.
  2. The employer then begins paying group term premiums for covered employees. In addition to the term insurance funding, the policy also includes a premium stabilization reserve to stabilize mortality and conversion costs that may occur throughout the life of the plan.
  3. Covered employees, upon reaching the designated conversion age, become eligible to convert their group term coverage to an individual permanent policy without evidence of insurability with premiums based on entry age rather than age at time of conversion.

What flexibility does Section 79 GEAR have?

Section 79 GEAR offers flexibility of funding and design options necessary in an ever-changing business environment. A business that adopts and implements a Section 79 GEAR plan has several areas of flexible elements:
  • Covered employees have the right to name and/or change their own beneficiary at any time.
  • Annual, bi-annual, quarterly or monthly payments are permitted.
  • Employers have the option to revise the level of benefit provided if their coverage needs or financial conditions change in subsequent years.
  • A helpful and knowledgeable administrative staff is available to assist employer and employees with any needs during participation.

A sample Section 79 GEAR case

The simple case below represents a good example of how installing Section 79 GEAR can be a powerful and effective way to provide meaningful employee benefits.

The owners of Constantly Green, Inc., a small, successful landscaping business, were looking to provide the following benefits for their employees on a tax-deductible* basis.
  • Current death protection
  • Right to name policy beneficiary
  • Affordable conversion privileges
  • Opportunity for estate-tax-free death benefits*
Constantly Green, Inc.
  • Started by Bill and Sam 12 years ago
  • 10-person C corporation (two owner/employees)
  • Benefit level – five times salary
  • Eligibility - All full-time employees, minimum of 1,000 hours annually.

Employer Advantages:

These results show how effectively an employer can provide a meaningful employee benefit in a nondiscriminatory manner that remains owner-friendly:
  • Constantly Green should recognize a tax deduction for the entire cost of $74,240.*
  • All covered employees can convert their group term coverage to individual permanent policies without evidence of insurability and with premiums based on their date of hire.

Employee Advantages:

Looking at what happens upon conversion for an individual employee provides more insight into the power of Section 79 GEAR conversions:
  • Without any evidence of insurability, Jim is eligible for an individually owned permanent life insurance policy with a $140,000 death benefit.
  • Without the entry-age conversion option, his annual premium would be $6,228.
  • Using Jim's date of hire to calculate the annual premium requires him to pay only $1,167. THAT’S A SAVINGS OF OVER 81 PERCENT!
  • After conversion, Jim owns the permanent life insurance policy and all of its many benefits.


Constantly Green Employee Summary
Name Entry Age Current Age Conversion Age Wages Death Benefit Cost
Bill 39 51 59 $200,000 $1,000,000 $30,895
Sam 38 50 59 200,000 1,000,000 29,902
Jane 26 29 59 32,000 160,000 1,304
Wilma 25 28 59 29,000 145,000 1,109
Steve 36 37 59 38,000 190,000 3,512
Judy 38 41 59 31,000 155,000 2,283
Nancy 22 23 59 18,000 90,000 578
Aaron 20 21 59 16,500 82,500 555
Jim 24 29 59 28,000 140,000 1,191
Carl 39 41 59 34,000 170,000 2,911
$74,240

A 100% tax deductible plan that favors the owners and has a tax advantaged exit strategy.



*The deductibility of contributions made to the plan, and the taxation of such contributions to controlling shareholders or employees, will ultimately depend upon the facts and circumstances surrounding each employer’s participation in the plan. Pension Professionals of Florida does not provide legal, tax or ERISA advice and does not authorize any of its agents to provide such advice. All questions of a tax or legal nature should be referred to your independent legal or tax advisers.


Contact The Pension Professionals of Florida today for a FREE 412(i) Feasibility Study to determine how a 412i Defined Benefit Plan can benefit you and your employees.
412(i) HOME FREE 412(i)
FEASIBILITY STUDY
412(i) BASICS defined benefit retirement plans 412(i), asset protection planning, qualified pension plans, charitable solutions, support organizations, family limited partnerships, stretch ira, dynasty trusts 412(i) FAQ SECTION 79
IS BACK 		NEW
REGS 		CODE SECTION
412(i) 		1st YEAR
CONTRIBUTIONS 		LEVERAGING A 412i
Defined Benefit Plan
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06/27/05