Final answer:
Statements A and D regarding fully insured Section 412(e)(3) plans are correct: these plans are not suitable for employers who cannot make regular premium payments, and they are a type of defined benefit pension plan. Statement C is also correct as these plans must meet minimum funding requirements. However, statement B is incorrect as the plans do require actuarial certification, despite the benefits being guaranteed by insurance companies.
Step-by-step explanation:
The question asks which statements about fully insured Section 412(e)(3) plans are correct. A fully insured Section 412(e)(3) plan, also known as a fully insured pension plan, has specific characteristics.
- A. A fully insured plan is indeed inappropriate for an employer who cannot commit to regular premium payments because these plans require fixed, periodic premium payments.
- B. This type of plan is not required to have an actuarial certification since insurance companies guarantee the benefits. Nevertheless, the IRS still requires that a valuation report be submitted annually, which includes a certification signed by a qualified actuary.
- C. All Section 412(e)(3) plans must comply with minimum funding standards each plan year. These funding requirements help ensure the plan can meet its future obligations.
- D. A Section 412(e)(3) plan is indeed a type of defined benefit pension plan. It provides a predetermined benefit at retirement, which is funded by the employer through premiums paid to an insurance company that underwrites the plan.
Defined contribution plans, such as 401(k)s and 403(b)s, are becoming more common than traditional pension plans, and they provide different benefits, like being portable between employers and potential for investment growth.