Defined benefit plan termination actuary

Optimizing Foundations manages standard terminations of single-employer defined benefit plans from the first feasibility study to the final Form 501. The firm has taken plans with surpluses and plans with deficits through the process, and settles the surplus or deficit strategy at the start rather than at the end.

What is included

• Feasibility. A termination-basis valuation pricing every benefit at lump sum and annuity purchase cost, projected to the expected distribution date under a range of interest rates.
• Surplus and deficit strategy. Analysis of the qualified replacement plan transfer and benefit increase alternatives under Section 4980 where assets exceed the cost of benefits, with the sponsor's counsel; the contribution required or majority owner waiver where they fall short.
• Filings and notices. The plan amendment and resolution, the Notice of Intent to Terminate, the Notice of Plan Benefits for each participant, PBGC Form 500 with the actuary's certification, the IRS determination letter request where wanted, and Form 501 after distribution.
• Participant calculations and elections. Lump sum values at the Section 417(e) rates, annuity options, relative value disclosures, spousal consents and election packages, with the data reconciled before the notices go out.
• Annuity provider review. The insurer analysis and fiduciary report under Interpretive Bulletin 95-1 for the annuity purchase, prepared alongside the financial work.
• Final accounting. Settlement and curtailment accounting under ASC 715 and final-year disclosures reconciled to zero, with audit support.

How the work runs

A standard termination runs twelve to eighteen months from the board resolution to the last distribution, set by the statutory notice periods and the PBGC review. The firm manages the calendar, the filings and the participant communications, and reports to the sponsor at each stage. The firm's article on terminating a pension plan walks through the sequence.

A recent engagement

A metals manufacturer terminated an overfunded salaried plan. The firm's feasibility work identified the surplus early, the sponsor adopted its 401(k) plan as the qualified replacement plan and the surplus was transferred to it, avoiding the excise tax on a reversion. The firm prepared the PBGC filings, the participant elections and the final ASC 715 disclosures reconciled to zero.

Common questions

The plan is overfunded. What happens to the surplus? A reversion is taxed at 50 percent plus income tax. Transferring at least 25 percent of the surplus to a qualified replacement plan reduces the excise tax to 20 percent, and transferring all of it avoids the excise tax while funding the 401(k) for up to seven years. The decision has to be made before distributions begin.

Can retirees in payment be offered lump sums? Retirees in pay status are usually settled by annuity purchase. The firm models both where the plan permits a choice.

Every deliverable described here is reviewed by a second credentialed actuary before delivery. This page is general information about the firm's services and is not advice for any specific plan.