This project concerns employee pensions and is being introduced to you at this point because it represents one of our individual projects for this semester. The project puts you in the position of a benefits manager. Project Overview: You are charged with making recommendations as the leader of a pension study task force, for a possible conversion of a company's benefit plan from a defined benefit plan to a defined contribution plan. You are asked to make recommendations about how such a proposed defined contribution plan would look and with communicating these changes to plan participants. Final Products you need to submit to me to complete the pension project: Recommendations from you, in the role of a leader of a pension study task force, for converting the defined benefit plan of Eastern Alliance Company to a defined contribution plan. The revised plan needs to meet ERISA standards for participant eligibility, enrollment, communication standards and vesting requirements. The project also requires that you draft a preliminary letter that will come from the Director of Human Resources to plan participants communicating to them how Eastern Alliance Company's pension plan has changed. This preliminary letter will serve as the basis to satisfy ERISA requirements for communicating changes involving the pension plan to participants. Memo To: Benefits Manager From: Burke Waltz, Director of Human Resources, Eastern Alliance Re: Exploratory examination of converting Eastern Alliance's pension program from a defined benefit pension plan to a defined contribution 401(k) plan. As you know, due to the volatility of our pension expenses our organization, Eastern Alliance, has decided to examine the feasibility of converting our defined benefit pension plan to a defined contribution plan. Over the course of the past several years, our executives have come to the conclusion that our defined benefits plan is unduly expensive for Eastern Alliance to maintain, administratively burdensome, places a disproportionate amount of risk upon Eastern Alliance, and is ineffective in attracting younger, more mobile employees to work for our organization because of our vesting requirements. The benefits survey which we purchase indicates that most companies which offer a retirement plan offer a defined contribution plan, such as a 401(k), in which the employer promises certain contributions to an employee's account but with no guaranteed retirement benefit. As a not-for- profit firm interested in configuring our pension plan to reflect today's economic environment, Eastern Alliance is forming a task force to examine the feasibility of converting our company's pension plan from a defined benefit plan to a defined contribution plan. In your role as the Benefit Manager for our firm, I am asking you to lead that task force. To help you lead this task force, please find below details of the current Eastern Alliance ERISA qualified defined benefit plan: Characteristics of the.

1. This project concerns employee pensions and is being introduced to you at this point because it
represents one of our individual projects for this semester. The project puts you in the position of a
benefits manager.
Project Overview:
You are charged with making recommendations as the leader of a pension study task force, for a
possible conversion of a company's benefit plan from a defined benefit plan to a defined
contribution plan. You are asked to make recommendations about how such a proposed defined
contribution plan would look and with communicating these changes to plan participants.
Final Products you need to submit to me to complete the pension project:
Recommendations from you, in the role of a leader of a pension study task force, for converting
the defined benefit plan of Eastern Alliance Company to a defined contribution plan. The revised
plan needs to meet ERISA standards for participant eligibility, enrollment, communication
standards and vesting requirements.
The project also requires that you draft a preliminary letter that will come from the Director of
Human Resources to plan participants communicating to them how Eastern Alliance Company's
pension plan has changed. This preliminary letter will serve as the basis to satisfy ERISA
requirements for communicating changes involving the pension plan to participants.
Memo
To: Benefits Manager
From: Burke Waltz, Director of Human Resources, Eastern Alliance
Re: Exploratory examination of converting Eastern Alliance's pension program from a defined
benefit pension plan to a defined contribution 401(k) plan.
As you know, due to the volatility of our pension expenses our organization, Eastern Alliance, has
decided to examine the feasibility of converting our defined benefit pension plan to a defined
contribution plan. Over the course of the past several years, our executives have come to the
conclusion that our defined benefits plan is unduly expensive for Eastern Alliance to maintain,
administratively burdensome, places a disproportionate amount of risk upon Eastern Alliance, and
is ineffective in attracting younger, more mobile employees to work for our organization because of
our vesting requirements.
The benefits survey which we purchase indicates that most companies which offer a retirement
plan offer a defined contribution plan, such as a 401(k), in which the employer promises certain
contributions to an employee's account but with no guaranteed retirement benefit. As a not-for-
profit firm interested in configuring our pension plan to reflect today's economic environment,
Eastern Alliance is forming a task force to examine the feasibility of converting our company's
pension plan from a defined benefit plan to a defined contribution plan. In your role as the Benefit
Manager for our firm, I am asking you to lead that task force.
To help you lead this task force, please find below details of the current Eastern Alliance ERISA
qualified defined benefit plan:
Characteristics of the Current ERISA Qualified Defined Benefit Program of Eastern Alliance
Company:
A. Contributions and/or matching Contributions:

2. The defined benefit plan of Eastern Alliance is completely employer funded. The contribution
made by Eastern Alliance is determined by annual actuarial valuation. No employee contributes to
the defined benefit plan.
B. Participation in the Plan
Employees are allowed to participate in the pension plan after they reach 21 years of age and
have completed one year of service.
C. Vesting
Members vest 100% of employer contributions from Eastern Alliance after three years of service. If
employees leave before three years of service, they receive 0% of employer contributions.
D. Qualifications for Retirement
The normal retirement age is 65, with early retirement at age 60. Employees can retire at any age
after 20 years of membership service.
E. Responsibilities for Managing the Investment
Employer plan officials of Eastern Alliance manage the investments and are responsible for
ensuring that the amount it has put in the plan plus investment earnings will be adequate to furnish
the obligated benefit. The future benefit payments are not affected by plan expenses, market
performance, or funding levels. The employee has no responsibility for managing investments.
F. Amount of Benefits Paid Upon Retirement
A promised employee benefit is based on a formula utilizing age, years of service and final
average salary. An employee reaching the age of 60-64 years of age is entitled to 2% of his or her
annual salary for each of his or her years of service. An employee who has reached the age of 65
years or over is entitled to 2.5% of his or her annual salary for each of his years of service. An
employee with three years or more of service that retired before the age of 60 would be entitled to
1% of his or her annual salary for each year of service. The benefit calculation is determined on
the average of the three highest salaries over the last five years of employment. For instance, an
employee whose highest three salaries in the last five years of employment were $68,000,
$70,240 and $72,347 would have a final average earning of $70,195. If this same employee
retired at the normal age of 65 with 24 years of service, this employee would receive 60% (24 x
.025) of their final average earnings annually as their annual retirement annuity under the defined
benefit pension plan. This annual amount would be $70,195 x .60= $42,117.
G. Type of Retirement Benefit Payments:
The defined benefit plan of Eastern Alliance Plan pays the retiree monthly annuity payments for
the remainder of his or her life. If the beneficiary is to receive an annual annuity of $42,117, this
annuity is divided into 12 monthly payment segments of $3,509.75. If a beneficiary dies, the
benefit is paid for the life of the member, usually with continued payments for a surviving spouse.
H. Cost-of-Living Adjustments:
The benefit includes a cost-of-living increase each year during retirement based on the consumer
price index.
I. Guarantee of Benefits:
The Federal Government through the Pension Benefit Guaranty Corporation guarantees some of
the benefit if the plan of Eastern Alliance fails.
Issues that the Exploratory Pension Conversion Task Force will Address and Provide

3. Recommendations to Eastern Alliance:
We are looking for recommendations from the task force for specific revisions to how we can
convert from a defined benefit plan to a defined contribution plan. In making your
recommendations, remember that the plan needs to remain ERISA qualified. The following
questions need to be addressed by your task force for how a proposed defined contribution plan of
Eastern Alliance will be structured:
1. Contributions and or Matching Contributions:
A. Who will make contributions to the defined contribution plan?
B. If the employer makes contributions, will the employer make contributions without contributions
from the employee? If so, what percentage of pre-tax annual salary employee salary earnings will
the employer make?
C. Will the employer match contributions of the employee?
D. Will the employee need to make contributions to the plan in order for an employee retirement
account to be established? If so, what percentage or range of pre-tax annual earnings will the
employee be expected to contribute?
E. Is there a maximum amount that the employee can contribute toward the plan?
2. Participation in the Plan:
A. When do plan participants become eligible to join the plan?
B. Is there an automatic enrollment provision into the plan when the employee is hired?
3. Vesting
A. What vesting schedule will Eastern Alliance follow for employer contributions toward the defined
contribution plan?
4. Qualifications for retirement
A. Is there a normal retirement age for this plan?
B. Are there qualifications necessary to receive the investment account beyond the vesting
schedule?
C. Can the employee transfer the account balance to an individual retirement account (IRA) or
another employer plan?
5. Managing the Investment:
A. Who is responsible for managing the investment?
B. Who is responsible for choosing investment options offered by the plan?
C. If automatic enrollment policies are in effect and no direction is provided by the plan participant
about investment decisions, can the plan fiduciaries choose investment options for the plan
participants?
D. Can withdrawals be made from the account balance? Are there taxes or penalties if the assets
are withdrawn? Under what circumstances would there be no penalty or taxes?
6. Amount of benefits paid upon departure including retirement:
A. What will the employee's benefit depend upon once they retire or leave Eastern Alliance
Company's employment?
7. Type of Benefit Payments:
A. What type of benefit payment will the employee receive? Will it be in the form of an annuity,

4. individual retirement account, or lump sum payment?
8. Cost-of-Living Adjustment:
A. is there a cost-of-living adjustment provided to employees post-retirement for their pension
benefit?
9. Guarantee of Benefit:
A. Is there a Federal Guarantee of benefits?
10. Conversion of Defined Benefit Plan to Defined Contribution Plan and Employee Status:
The task force needs to determine whether some, all or none of our current employees of Eastern
Alliance should be moved from the defined benefit plan to the proposed defined contribution plan.
Consideration should be given whether any of our options risk violating the Age Discrimination in
Employment Act (ADEA). Our options are as follows:
a. Eastern Alliance can allow all employees to remain in the defined benefit plan which restricts
only new employees to the defined contribution plan. The problem of this action, of course, is that
it would not immediately address many of the reasons we are converting to a defined contribution
plan.
b. Eastern Alliance can require all of our employees to move to the defined contribution plan. The
problem of this action is that it may severely undermine the morale of our most senior employees
who are heavily vested in the defined benefit plan.
c. Eastern Alliance can stipulate that certain employees who have reached a specific length of
service or who have reached a certain age will remain in the defined benefit plan and the
remainder of our employees will be moved to the defined contribution plan. For instance, only
employees who have 20 years of service with Eastern Alliance or who have attained the age of 55
or over will be kept in the defined benefit plan.
Conversely, Eastern Alliance could use a minimum point allocation system multiplying years of
service and age to determine whether employees remain in the defined benefit plan or are moved
to the defined contribution plan. As an example, employees with 1,000 or points or more would
remain in the defined benefit plan, while employees with less than 1,000 points would be moved to
the defined contribution plan. For example, an employee of 45 years of age and 25 years of
service would receive 1,125 points (45 x 25) and would thus remain in the defined benefit plan.
Draft Letter for Plan Participants:
The last function of the task force is to prepare a proposed draft letter for the Director of Human
Resources to distribute to our plan participants stating the major changes to our pension plans.
This draft letter will serve as the basis to satisfy ERISA requirements for communicating changes
to the pension pl