1. Top Things You Need to Know Before
Freezing/Terminating the Company’s Defined
Benefit Pension Plan
Midwest Pension Conference Fall Seminar
September 21, 2011
Sandi Bruns, FSA, EA – Van Iwaarden Associates
John Merkle – Fredrikson & Byron, P.A.
Mark Schulte, FSA, EA – Van Iwaarden Associates
2. Outline
Background / Definitions
Lessons learned from:
– Freezing the DB plan
– Living with a frozen DB plan
– Terminating the DB plan
Post-termination “gotchas”
Q&A
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3. Background
Soft Freeze: No new employees may enter plan.
Current participants continue to accrue benefits.
Hard Freeze: Benefit accruals cease for all
participants.
“Slushy” Freeze: Benefit accruals cease for all
but a small group of grandfathered participants.
Plan Termination: Employer ends obligation of
plan sponsorship by paying out all accrued
benefit promises.
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4. Freezing the DB Plan
• Notices (and effect if defective)
HR / Admin • Timing of freeze, notices, and amendments
• Managing the message to employees
• Set up process and authority to make decisions
• ASC 715 (FAS 88) curtailment accounting
Finance • 412(d)(2) election for funding
• Is the Plan the problem, or the volatility?
• Partial plan termination?
Other • Effect on other plans
• e.g., retiree medical, profit sharing (Gateway)
• Develop a plan for the Plan!
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5. Living with a Frozen DB Plan
• Same administrative work required
HR/Admin • 5500 filings, PBGC premiums
• Funding notices
• Administrative preparation - Gather the data!
• Continue accounting and funding valuations
Finance
• Consider changes to actuarial assumptions
• Immunize assets to lock-in funding gains
• Wear-away of nondiscrimination testing results
Other
• Work towards “almost 100% funded”
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6. Terminating the DB Plan
• Set assignments and responsibilities
HR / Admin
• PBGC and IRS applications/notices
• Timing is very important (notices, filing, payments)
• Special plan termination admin rules
• Final valuation report (year of plan)
Finance
• ASC 715 (FAS 88) settlement accounting
• “Short” plan year vs. year of plan term
• Communication with participants
Other
• Payment alternatives (and responsibilities)
• Reversion of assets
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7. Post-Termination Gotchas
The fun may not stop when benefits are paid out!
Beware of:
Unfavorable IRS determination
IRS and/or PBGC audits
Maintenance of data
Other things to consider:
5500 filings due until all assets distributed
But due date is based on end of short plan year!
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