What is a 412(e)(3) plan?

A 412(e)(3) plan is a specialized defined benefit plan funded exclusively through insurance products, typically annuities and life insurance. Because the plan is fully insured, benefits are supported by the insurance contracts rather than market performance.

Who is a 412(e)(3) plan often suited for?

These plans are often suited for small business owners or highly compensated professionals seeking higher contribution limits and a more predictable retirement benefit structure. Fit can depend on business structure, employee profile, and long-term objectives.

How are contributions determined?

Contributions are determined through actuarial calculations and are generally tax-deductible for the employer, subject to applicable rules. Because this is a defined benefit plan, contribution requirements are typically tied to funding the promised benefit and the plan’s design.

What are key considerations with a 412(e)(3) plan?

Key considerations may include required annual contributions, higher administrative costs, and strict plan maintenance requirements. These plans are generally best suited for businesses with stable cash flow and long-term planning objectives.

Are benefits “guaranteed” in a 412(e)(3) plan?

In a 412(e)(3) plan, the benefit structure is supported by the underlying insurance contracts. In general terms, the guarantees are those provided by the insurance company through the contract provisions, rather than being driven by market performance. Guarantees and contract terms vary by carrier and product.