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Section 79 Plans: A Pension Alternative for Permanent Life Insurance

Updated on January 4, 2013

Section 79 Retirement Plan

As 2013 begins and your mind settles on your pending income tax return, you may want to consider some additional tax mitigation strategies for 2013 fiscal year. There is a unique program called a Section 79 Permanent Benefit Plan you may want to consider for your small business, particularly for companies with fewer than 10 employees.


The IRS code Section 79 covers the tax implications for Group Life benefits offered by companies. What the Section 79 Permanent Benefit Plan allows for the business owner to create a benefit for him/herself by using a specially designed permanent cash value life insurance contract that grows cash value for the owner and provides optional term benefits for employees. This is a great alternative for the business owner to supplement the existing pension programs or to have in lieu of one.


Key details:


•Owner is typically covered by the permanent insurance, while rank & file employees will typically be covered by an inexpensive base term policy

•Contributions are for FIVE (5) years only

•Contributions to the plan are tax deductible to the company. Owner realizes a taxable income of approximately 60% of the contribution to the permanent cash value policy (or a 40% reduction on taxable income).

•Program is specifically designed for small companies under 10 employees, even single owner operators.

•Underwriting is simplified, so no lab work required

•There are no limits to contributions or to the size of the life insurance benefit.

•Cash values in the contract grow tax deferred and may be accessed on an income tax free basis using loans, either for supplemental income or even business purposes.

•The plan is administered by a qualified Third Party Administrator

•Plans are designed for C-Corps, but S-Corps and other flow entities may create C-Corps as holding or management firms to allow for implementation.



Typically these programs have only been available to companies with 10 or more employees, so this unique opportunity has not been well publicized in the small business market.

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