Pension Benefit Guaranty Corporation 

77-122 

January 11, 1977 

REFERENCE: 

 [*1] 4041(a) Termination by Plan Administrator. Filing of Notice of Intent to Terminate 

OPINION: 

 This has further reference to your recent letter and subsequent telephone conversation with * * * of this

Corporation's Office of Program Development, concerning the disposition of individual life insurance policies during

the period after the date of a covered plan's proposed termination and before its assets have been determined by this

Corporation to be "sufficient." Our response only applies to plans funded with individual life insurance contracts, rather

than plans funded with group pension contracts. 

As we understand the pertinent facts, * * * has issued individual life insurance contracts, each covering a named

participant, to a number of plans which are covered under Title IV of the Employee Retirement Income Security Act of

1974 (the "Act"). These life insurance contracts, held for the benefit of active plan participants, are cancelable by such

plans. The individual insurance contracts in such plans are owned by the trustee of each such plan. Some of these

covered plans (the "Plans") have submitted, pursuant to Section 4041(a) of the Act, a Notice of Intent to Terminate to

the Pension [*2] Benefit Guaranty Corporation (the "PBGC"). As of the proposed termination date of the Plans, no

premiums were due on any of the individual life insurance contracts. 

You asked which of specified actions you may take with respect to the individual life insurance contracts between

the proposed date of termination under Section 4041(a) of the Act and the date on which a Notice of Sufficiency under

Section 4041(b) of the Act is issued. We assume that any of the specified actions taken during the aforementioned period

will preserve the value of the assets of the Plans, i.e., the value of the Plans' assets will not be diminished. These actions

are: 

 1. Distribute the individual life insurance contracts to the trustees. 

2. Transfer the ownership of the contracts to the individual participants after borrowing the entire cash surrender

value of each contract and giving the sum of the cash surrender values received to the trustees. 

3. Transfer the ownership of the contracts to the employer maintaining the Plan at the time it was terminated after

borrowing the entire cash value of each contract and giving the sum of the cash surrender values received to the trustees.

Section 4041(a) [*3] of the Act provides that "for a period of 90 days after the proposed termination date the plan

administrator shall pay no amount pursuant to the termination procedure of the plan unless, before the expiration of such

period, he receives a notice of sufficiency under subsection (b)." (Emphasis added). The Congressional Conference

Report recommending passage of the Act indicates that the "amount" prohibited by Section 4041(a) from being paid is

a benefit under a plan's termination procedure. H.R. Conf. Rep. No. 93-1280, pp. 371-2. The conversion of a plan asset,

such as individual life insurance contracts, for value received is not proscribed by Section 4041(a). That is, the

conversion of a plan asset from one form (individual life insurance contracts) to another (cash) is permissible prior to

the issuance of a Notice of Sufficiency. 

Therefore, assuming each individual insurance contract so provides, the PBGC has no objection if the individual

life insurance contracts are distributed to the trustees since such action does not represent the distribution of a benefit

pursuant to the Plan's termination procedure. Furthermore, since the actions described in paragraphs 2 and [*4] 3,

above, which are designed to prevent each participant from losing his or her life insurance protection, represent a

conversion of a plan asset and not a benefit distribution pursuant to the Plan's termination procedure, such actions may

be taken if the Plan receives the entire value of the individual life insurance contracts, i.e., the cash surrender values and

the remaining value of the contracts (such as the amount of the unearned premiums), if any. 

The PBGC expresses no opinion concerning the compliance of this procedure with any provision of law other than

Title IV of the Act, i.e., the provisions of Titles I and II which are administered by the Department of Labor and the
Internal Revenue Service respectively. Consequently, you may wish to contact these agencies directly to discuss the

implications of the proposed actions under Titles I and II. 

 You also asked whether a plan which has terminated - either by submitting a Notice of Intent to Terminate and being

converted by amendment into an individual account plan, as defined in Section 3(34) of the Act, or being converted by

amendment into an individual account plan so as to result in a plan termination under Section [*5] 4041(f) of the Act -

may transfer the ownership of each individual insurance contract to each named participant prior to receiving a Notice

of Sufficiency from the PBGC "if the participants have been given the choice of having the assets of the policy

transferred to the new plan, or continuing the policy on a personal basis . . ." This question appears to us to ask whether

a participant who has been offered a choice of the form in which his benefit will be paid (satisfied) and has elected to

receive his benefit under the terminated plan in the form of an insurance contract, may have that contract distributed to

him prior to the time the PBGC issues a Notice of Sufficiency. As mentioned previously, Section 4041(a) of the Act

prohibits any distribution of a benefit pursuant to a plan's termination procedure until the PBGC has issued a Notice of

Sufficiency. Accordingly, the plan may not transfer ownership of the individual insurance contracts to the participants

until the PBGC notifies the plan administrator, pursuant to Section 4041(b), that "after application of section 4044, the

assets held under the plan are sufficient to discharge when due all obligations of the plan with respect [*6] to basic

benefits . . . ." 

We hope this information is of assistance. 

Henry Rose 

General Counsel