1. Top Things You Need to Know Before
Freezing/Terminating the Companyâs Defined
Benefit Pension Plan
Midwest Pension Conference Fall Seminar
September 21, 2011
Sandi Bruns, FSA, EA â Van Iwaarden Associates
John Merkle â Fredrikson & Byron, P.A.
Mark Schulte, FSA, EA â Van Iwaarden Associates
2. Outline
ď§ Background / Definitions
ď§ Lessons learned from:
â Freezing the DB plan
â Living with a frozen DB plan
â Terminating the DB plan
ď§ Post-termination âgotchasâ
ď§ Q&A
1
3. Background
ďŽ Soft Freeze: No new employees may enter plan.
Current participants continue to accrue benefits.
ďŽ Hard Freeze: Benefit accruals cease for all
participants.
ďŽ âSlushyâ Freeze: Benefit accruals cease for all
but a small group of grandfathered participants.
ďŽ Plan Termination: Employer ends obligation of
plan sponsorship by paying out all accrued
benefit promises.
2
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!
3
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 âalmost 100% fundedâ
4
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
⢠âShortâ plan year vs. year of plan term
⢠Communication with participants
Other
⢠Payment alternatives (and responsibilities)
⢠Reversion of assets
5
7. Post-Termination Gotchas
The fun may not stop when benefits are paid out!
ď§ Beware of:
ď Unfavorable IRS determination
ď IRS and/or PBGC audits
ď Maintenance of data
ď§ Other things to consider:
ď 5500 filings due until all assets distributed
ď But due date is based on end of short plan year!
6