System and method for creating a defined benefit pension plan funded with a variable life insurance policy and/or a variable annuity policy

DETAILED DESCRIPTION OF THE INVENTION I.
Overview of the Present Invention The present invention provides a mechanism to avoid violation of the "incidental benefit rule," an Internal Revenue Service rule that denies qualified treatment to a defined benefit plan which provides life insurance in other than incidental amounts.
The present invention does this by negating a policy option that may be ordinarily elected by a participant covered by the policy or plan fiduciary, under which the excess (if any) of the policy's cash value over the "tabular cash value" (essentially the net level premium reserve on a regular whole life policy having the same face amount and the same net premium as the policy) is added to the policy's face amount, with the total becoming the death benefit payable under the policy.
The present invention differs from a process based upon traditional ordinary whole life insurance policy only in that the policy employed in the process generally does not contain guaranteed (i.
e.
, contractual) cash values with respect to amounts allocated to the variable account within the policy, itself.
However, the present invention achieves the same effect by virtue of supplemental contractual provisions that either modify the obligations of the insurance company to the plan and the plan's participants or combine existing policies and riders to achieve the same end.
Further, the present invention permits, in addition to the level premium payment schedule under the Policy, the payment of extra unscheduled premiums to the Policy, where such extra premiums do not directly affect the death benefit amount, but instead are allocated directly to the cash value, which can affect the death benefit but not to a significant degree.
In general, an insurance policy may be deemed to be ordinary whole life insurance for the purpose of applying IRS Revenue Ruling 54-51 if, by the terms of the policy, (1) the amount of the death benefit may not decrease, and (2) the contractual premium may not increase during the period which is the lesser of the lifetime of the participant or the time the policy remains in force