Explore the key benefits and requirements of participating in an 831(b) Plan to efficiently manage risk and secure your business’s future.
The plan must include a transfer of risk from the participant’s operating company. To achieve this, IRC’s Strategic Partner utilizes a direct writer. Along with a transfer of risk, the plan must utilize the law of large numbers to distribute risk among unrelated parties. The risks being addressed by the plan must be fortuitous in nature, and not ordinary business risks. Lastly, the plan must act according to the generally accepted principles of insurance.
Traditional insurers may cover many risks, but often limit or exclude coverage for certain events. An 831(b) Plan addresses gaps that traditional policies miss, helping business owners mitigate risks that they may not even realize they face.
An 831(b) Plan allows business owners to defer income for future risks, instead of using after-tax money from cash flow. When disaster strikes, the tax-deferred reserves can be accessed to help the business recover.
831(b) Plans are customizable to meet the specific risk management needs of your business. Business owners can select from a variety of options to cover gaps in traditional insurance policies and manage reserves in a way that aligns with their risk tolerance and financial goals.
IRC’s Strategic Partners 831(b) Plans are designed to integrate seamlessly into a business’s operations, bringing efficiency and reducing disruptions. The Administrator helps ensure the plan meets the four-part test and achieves the business’s risk mitigation goals.
Like a 401(k), an 831(b) Plan has annual contribution limits. IRC’s Strategic Partner uses a methodology based on factors like gross revenue and industry to determine contributions. Plans are subject to annual solvency testing, and dividends can be distributed based on surplus reserves.
831(b) Plans allow up to $2.8 million in annual tax-deferred contributions. However, investment income and realized gains are taxed at the C-Corp rate, and dividend distributions to shareholders are taxed at the qualified dividend rate.
Plan participants can declare dividends or file claims against the 831(b) Plan when a catastrophe strikes, much like a traditional insurance policy. IRC’s Strategic Partner helps participants navigate the claims process to ensure compliance with insurance principles.
831(b) Plan participants share risks with other participants through risk co-ops. This distribution of risk ensures compliance with the Four-Part Test but also means participants may be responsible for portions of claims made by unrelated parties.
IRC’s Strategic Partners annual fees are the lowest in the industry for administering 831(b) Plans, covering maintenance, claims processing, and tax reporting. The retained liability premium charged by the direct writer and fees from financial institutions holding plan reserves may also apply.
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