A 412(i) defined benefit pension plan, referred to in IRS regulations as an "insurance contract plan", is the only defined benefit plan that is exempt from the minimum funding requirements of Section 412 of the Internal Revenue Code. This type of plan, therefore, enjoys certain advantages over the traditional defined benefit plan and is worth exploring if you are the owner of a small business.
These advantages create a plan that, compared to a traditional defined benefit plan, will produce:
- Larger initial deductions;
- More stability in the contribution level;
- Simpler plan administration; and
- A secure promise of future benefits guaranteed by an insurance company.