First it was Pac Life, now Life of the Southwest (LSW) is suspending all sales of Section 79 Plans effective immediately.
I’ve been warning about Section 79 Plans for several years. From a pure financial standpoint, I do not believe these plans are worth implementing. In fact, I was so disgusted with how these plans are sold that I created a consumer protection web-site (see www.section79plans.net which discusses in detail why I don’t like these plans).
Too much greed–even though I’ve been warning about these plans for years, hundreds of agents continue to sell them. Why? Greed. Section 79 Plans pay some of the biggest commissions in the industry. Now I imagine that these greedy/ignorant agents may regret selling these plans.
The following is the text from an email LSW sent yesterday.
Suspension of Section 79 Sales
National Life Group has recently become aware that the IRS is conducting a number of audits of employee benefit plans established under Section 79 of the Internal Revenue Code that utilize the products of another carrier. We understand that these audits are focused on the implementation and structure of the plans, including review of whether the plans are discriminatory under IRS interpretation of relevant regulations.
Due to the uncertainty resulting from the IRS audits, we believe it is appropriate to suspend the sale of National Life Group products in Section 79 plans pending our further review of the issues involved. Please note that this suspension will take effect immediately. We will continue to monitor this situation, evaluate the arguments being made by the IRS and issue communications as we learn more going forward.
We recognize that this may disrupt plans that have been recently submitted and we will be communicating directly with producers who have pending cases received in the home office on or before June 23, 2015. In particular, we have developed procedures for advising applicants of the situation so that they may seek additional tax and legal advice as appropriate.
National Life Group will continue to offer its products to those Section 79 plans already in existence at the time of this notice to fulfill the requirements of the plans.
Thank you for your continued support of National Life Group.
The moral of the story? Don’t sell programs that sound too good to be true. Don’t sell programs that are not in a client’s best interest. Finally, when I say I’ve researched a topic and that it is one I don’t recommend, consider taking my recommendation no matter how much money you could make.
Roccy DeFrancesco, JD, CWPP™, CAPP™, CMP™