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Plan termination strategy

DB Plan Terminations – Some Basics

The combination of higher interest rates and a strong stock market have significantly improved pension funding. For some sponsors looking to exit the DB system, this improvement in funding may put them in a position to consider plan termination. In this article we briefly review some of the key issues the project of terminating a plan presents.

Five things to think about before paying a retiree lump sum

IRS recently released Notice 2019-18, stating that it no longer intends to amend current required minimum distribution (RMD) regulations to prohibit the payment, as part of a “lump-sum window program,” of a lump-sum to a retiree currently receiving an annuity. The new Notice appears to authorize offering a lump-sum option to retirees in de-risking transactions…Read More

Frozen Plan Update

In January 2016, IRS published a proposed regulation addressing the issue of the application of Tax Code nondiscrimination rules to frozen DB plans. In April 2016, IRS announced its intention to withdraw certain provisions from that proposal. In this article we discuss the provisions of IRS proposal applicable to frozen plans and some issues under…Read More

Pension Plan termination strategy – part 2

In our prior article, we discussed the basic factors in a standard plan termination analysis: taking as a baseline the plan’s PBO, we considered the key variables of the present value of future administrative costs (including PBGC premiums) and the annuity purchase premium. In this article we will consider a factor that is left out…Read More

PBGC premium increases: significance for funding, de-risking & plan termination

We have previously posted articles on strategies for borrowing-and-funding and reducing headcount to reduce Pension Benefit Guaranty Corporation premiums. The increases in PBGC premiums in the Bipartisan Budget Act of 2015 (BBA2015) have made this strategy even more compelling. In this article we review the cost of borrowing-and-funding vs. continuing to pay the PBGC variable-rate…Read More

De-risking activity: Impact of interest rate and mortality assumption changes

We recently published two articles, Accounting impact of changes in interest rate and mortality assumptions and Funding impact of changes in interest rate and mortality assumptions. Since we wrote those articles the Fed Open Market Committee met (in September) and decided not to raise the Fed funds rate, although reports are the committee is still…Read More

Pension plan termination strategy – part 1

While interest rates remain near historic lows and, thus, measured pension liabilities remain high, some plan sponsors, particularly sponsors of frozen plans, have decided on (or are considering) plan termination. In this article we discuss the financial factors affecting a decision to terminate or not terminate a frozen plan, comparing the cost of buying annuities…Read More