THE FULLY-INSURED DEFINED-BENEFIT PENSION PLAN:
HISTORY, DESCRIPTION, AND ASSESSMENT OF 412(I)
A wide variety of pension plan types exists in the United States. While the pension plan types are designated by textual descriptions (such as defined-benefit, defined-contribution, and other functional descriptions), numerical designations based on the section of the Internal Revenue Code that regulated pension plans for federal income tax purposes also are widely used. This research focuses on the Section 412(I) pension plan type, which is a fully-insured, defined-benefit plan (Fitzpatrick and Fisher, 1991, p. 52).
The history of the fully-insured, defined-benefit pension plan is reviewed in this research. As this plan type is integral to the general pension structure in the United Stated (particularly in relation to federal income taxation), the historical review encompasses the broad structure of pension plans in the United States. The fully-insured, defined benefit pension plan also is described in this study. Rules and regulations applicable to the pension plan type are discussed. Further, accounting and funding issues are considered. The functioning of the 412(i) pension plan type is understood best through comparison with other pension plan types, and such comparisons are included in this study. Lastly, the fully-insured, defined-benefit pension plan is assessed in this study. The advantages and disadvantages of this pension plan type are compared with those associated with other pension plan types.
High marginal federal income tax rates on ordinary income, together with congressionally provided opportunities to avoid the taxation of some income as ordinary income, created an environment in which the use of tax shelters was officially encouraged. While the Internal Revenue Service (IRS) has never been supportive of the tax shelter concept, Congress has often had sound economic reasons for encouraging their use in...