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Plan Merger pros and cons


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8 replies to this topic

#1 AndyH

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Posted 13 December 2011 - 01:43 PM

Sponsor has two frozen union plans, each with about 350 participants.

Looking to develop pros and cons of a merger. Each plan about 80% funded. No 436 restrictable benefits.

Pros including one valuation, one audit, one Trust, resulting fee savings.

Cons include need to pay estimated PBGC premium filings, perhaps additonal PBGC reporting, record keeping requirements of merger, IRS merger filing and documentation.

Anybody willing to add or elaborate?

#2 Andy the Actuary

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Posted 13 December 2011 - 02:44 PM

Suspect that bargaining agreements would require approval from all unions involved. Confusion might arise as different compensation/service computation periods, eligibility for early, normal, disability, and death benefits, vesting service crediting, vesting schedule, standard forms of payment, distribution options, etc. between the two plans. If one plan subject to possible restrictions and the other is not, then combining plan may cost more to cure restrictions. If one or both plans frozen 9/2005, then be sure amendment doesn't eliminate 436 grandfather. Make sure that non-prescribed actuarial assumptions still make sense.
The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

#3 jpod

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Posted 13 December 2011 - 03:32 PM

Who is responsible for investment decision-making/supervision in each plan? If Union reps are involved with each plan, might not be workable or even politically correct to have a mixed marriage.

#4 AndyH

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Posted 13 December 2011 - 03:57 PM

Who is responsible for investment decision-making/supervision in each plan? If Union reps are involved with each plan, might not be workable or even politically correct to have a mixed marriage.


Single employer plan run solely by management so I don't see that as an issue, but thanks for raising it.

Edited by AndyH, 13 December 2011 - 03:59 PM.


#5 jpod

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Posted 13 December 2011 - 04:00 PM

I assumed it was a single E plan but sometimes if you're negotiating yourself out of a multiemployer plan the union may insist that it be represented on board of trustees or investment committee.

#6 AndyH

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Posted 13 December 2011 - 04:02 PM

Suspect that bargaining agreements would require approval from all unions involved. Confusion might arise as different compensation/service computation periods, eligibility for early, normal, disability, and death benefits, vesting service crediting, vesting schedule, standard forms of payment, distribution options, etc. between the two plans. If one plan subject to possible restrictions and the other is not, then combining plan may cost more to cure restrictions. If one or both plans frozen 9/2005, then be sure amendment doesn't eliminate 436 grandfather. Make sure that non-prescribed actuarial assumptions still make sense.


Again, no 436 issues but the possible benefit provision differences would be a headache for HR and for the actuary, good points, thanks. Don't know if they outweigh the possible fee savings though.

#7 frizzyguy

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Posted 13 December 2011 - 05:09 PM

I assumed it was a single E plan but sometimes if you're negotiating yourself out of a multiemployer plan the union may insist that it be represented on board of trustees or investment committee.


This is a DB plan, would a union really care if their benefits are guaranteed about what kind of investments the plan uses?
IMHO

#8 Andy the Actuary

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Posted 13 December 2011 - 05:14 PM

I assumed it was a single E plan but sometimes if you're negotiating yourself out of a multiemployer plan the union may insist that it be represented on board of trustees or investment committee.


This is a DB plan, would a union really care if their benefits are guaranteed about what kind of investments the plan uses?

Unions will care about anything the bargaining agreement empowers them to care about.
The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

#9 david rigby

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Posted 13 December 2011 - 05:38 PM

Another con: at-risk testing under 430(i).
I'm a retirement actuary. Nothing about my comments or advice is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, certainly not all the time, it might be reasonable to interpret my comments as actuarial advice.