Pension plan freeze/termination issues_MWPC 2011


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Outline of presentation on lessons learned from years of working on pension plan freezes and terminations.

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Pension plan freeze/termination issues_MWPC 2011

  1. 1. Top Things You Need to Know BeforeFreezing/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. 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 1
  3. 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. 2
  4. 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. 5. Living with a Frozen DB Plan • Same administrative work requiredHR/Admin • 5500 filings, PBGC premiums • Funding notices • Administrative preparation - Gather the data! • Continue accounting and funding valuationsFinance • Consider changes to actuarial assumptions • Immunize assets to lock-in funding gains • Wear-away of nondiscrimination testing results Other • Work towards “almost 100% funded” 4
  6. 6. Terminating the DB Plan • Set assignments and responsibilitiesHR / 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 5
  7. 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! 6
  8. 8. Discussion andQuestions 7
  9. 9. Contact InformationSandra Bruns, FSA, EA, MAAAsandrab@vaniwaarden.com612.596.5968John Merklejmerkle@fredlaw.com612.492.7027Mark Schulte, FSA, EA, MAAAmarks@vaniwaarden.com612.596.5971 8