What Happens at Retirements

Surrender the policy

Cash values become part of the plan assets 

Cash values are used to pay any retirement benefits due

The proceeds can be rolled into an IRA or taken as a lump sum 

Participant purchases the policy from plan for fair market value

This purchase is not considered a prohibited transaction as a result of a Department of Labor exemption

The amount paid to the plan for the purchase of the policy is combined with the insured’s investment account under the plan or the general assets of the plan

Plan distributes the policy to participant in lieu of retirement benefits 

Taxable transaction and the ownership of the policy changes from the qualified plan to the insured 

20% mandatory withholding on the taxable benefit 

Payment of the 20% withholding can be accomplished by a distribution from the policy or using other qualified plan proceeds