From Frozen to Terminated – Three Key Events

Most DB plan sponsors that freeze their plan want to terminate it completely someday.

Terminating the plan allows plan sponsors to:

 

  • Pay plan participants the benefit they have earned.
  • Eliminate the liability that they have had to manage as part of the plan.

There are a lot of moving pieces leading up to a DB plan termination including:

  • Administrative tasks (such as participant notices, election forms, government filings, etc.),
  • Plan document amendments,
  • Annuity purchase decisions,
  • Protecting the plan’s funding status (which is so critical to maintain during this process).

A service provider that specializes in DB plan terminations can help guide you through these things.

 There are three key events leading up to a termination.

Execution Process

  1. Execute on your asset allocation strategy.  Dynamic Asset Allocation is a common method used to help reduce risk as a DB plan approaches termination.
  2. Manage all of the administrative requirements that are involved in a DB plan termination.  As mentioned above, this includes participant notices and filing, among other things.
  3. Final asset and liability transfer – also known as risk transfer.  This step includes the payment of participant benefits as lump sum distribution or annuity purchases.

Each of these events has its own unique set of challenges and it is critical that a DB plan sponsor work with experienced professionals to help them through his process.  I’ll be discussing each of these events through my next series of blogs.  I’d like to hear from you as to what specific challenges you may have faced and what questions you have.   Please feel free to comment/contact me.

In addition to blogging here, I also tweet regularly about DB topics of interest. Click to follow me on Twitter- @scottruba.

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Affiliation Disclosures

 

The subject matter in this communication is provided with the understanding that The Principal® is not rendering legal, accounting, or tax advice.  You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.

Asset allocation/diversification does not guarantee a profit or protect against a loss. Use of dynamic asset allocation does not guarantee improvement in plan funding status nor the timing of any improvement.

 Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group® (The Principal®), Des Moines, IA 50392.

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