Glossary term
412(i) Plan
A 412(i) plan is the former name for a fully insured defined benefit retirement plan now generally referred to under Section 412(e)(3).
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What Is a 412(i) Plan?
A 412(i) plan is the former name for a fully insured defined benefit retirement plan. These plans are now generally discussed under Internal Revenue Code Section 412(e)(3), but the older 412(i) label still appears in legacy retirement-plan materials and adviser conversations.
The plan is designed to fund promised retirement benefits through insurance or annuity contracts. It is a specialized structure, most often relevant to small businesses, professional practices, and owner-employees considering defined benefit plan designs.
Key Takeaways
- 412(i) is the older name for what is now generally called a 412(e)(3) fully insured defined benefit plan.
- The plan is funded through insurance or annuity contracts that support promised retirement benefits.
- It is a defined benefit plan, not a standard 401(k) or profit-sharing plan.
- These plans can involve high required contributions and complex tax, insurance, and compliance rules.
- IRS guidance has focused on abusive arrangements, so careful plan design and documentation matter.
How a 412(i) Plan Works
A fully insured defined benefit plan promises a retirement benefit and funds that promise through qualifying insurance or annuity contracts. Instead of depending only on a pooled investment portfolio, the plan uses contracts designed to provide specified benefits under the plan rules.
Because it is a defined benefit plan, the employer's funding obligation can be significant. The plan must be designed, administered, and funded under retirement-plan rules, and the insurance contracts must satisfy the requirements that apply to this structure.
412(i) Versus 412(e)(3)
Term | Meaning | Practical takeaway |
|---|---|---|
412(i) plan | Older name used before statutory renumbering | Still appears in legacy materials |
412(e)(3) plan | Current reference for fully insured defined benefit plans | Better term for current technical discussion |
Defined contribution plan | Plan based on account contributions and investment results | Different structure from a promised-benefit plan |
Why It Matters
A 412(i) plan can create large required contributions and potentially meaningful retirement benefits for certain business owners. That is why the structure often appears in small-business retirement planning. But the same features that make it powerful can also make it expensive, inflexible, and compliance-sensitive.
These plans can also include life insurance features, which makes the tax and valuation treatment more complicated. The IRS has issued guidance addressing abusive uses of specially designed life insurance policies in these plans, so the details matter.
Common Misunderstandings
A 412(i) plan is not a simple tax shelter and not a casual add-on to a business owner's retirement plan. It is a qualified defined benefit plan with insurance-based funding and ongoing administrative requirements.
Another misunderstanding is that the old name means the structure disappeared. The terminology changed, but fully insured defined benefit plans still exist under the current 412(e)(3) framework when properly designed.
The Bottom Line
A 412(i) plan is the legacy name for a fully insured defined benefit plan now generally referred to as a 412(e)(3) plan. It can be useful in specialized retirement-plan design, but it requires careful tax, actuarial, insurance, and compliance review.