When life insurance is included in a cash balance plan or defined benefit plan, it must be allocated to all eligible employees. The inclusion of life insurance will usually result in a tax liability to the employee based on the “economic benefit” of the insurance protection. Employees have to pay income tax each year on the part of the premiums attributed to the value of insurance. This is a taxable event to the employee because the insurance premiums are paid with pretax dollars. But the IRS considers the pure cost of the life insurance provided as an economic benefit that is immediate taxable income to the insured. The cost of the insurance that is taxable is calculated using IRS tables that estimate the insurance cost at each age of the insured. This economic benefit is calculated by the insurance company. The employee then will receive a 1099-R at the end of the year and must pay taxes on this amount.