Originally published May 2015
For more than a decade, numerous promoters have touted
Section 419 plans as a legitimate way to reduce taxes at the
corporate level. These plans have been sold as "welfare
benefit trusts" or "death benefit only trusts" for
the ostensible purpose of providing non-retirement type benefits to
employees. However, in most cases coverage is limited to owners,
other key employees and a small number of rank and file employees.
In virtually all of these cases, the plans are funded exclusively
with cash-value whole life insurance.
The promoters of such arrangements initially justified tax
deductions under Section 419A(f)(6) of the Internal Revenue Code,
which permits "unrestricted" deductions to so-called
multiple employer plans comprised of 10 or more unrelated employers
who share risk in a common pool. After the IRS attacked the
validity of Section 419A(f)(6) plans for a variety of reasons, most
promoters converted those plans into Section
