Jump to content

Distress Termination


Recommended Posts

I have a small non-profit client, they have a DB plan, and they are now out of business, done. The lockdown has ended all their activities that generate revenue.  They won't be able to operate in an extended "social distancing" environment either.  The DB plan has been frozen for several years with just 3 participants, they were about one year away from being fully funded to the plan termination liability, but with the market drop and the lockdown, there will be no more contributions and the plan is underfunded.  They will need to file a distress termination.  All benefits are well under the guaranteed benefit amount. 

Any recent experiences with distress terminations?  The last one I'm familiar with in the early 2000s did not ever get resolved, PBGC did not do anything, the plan eventually ran out of money paying fees and no participants ever received any plan benefits.   I'd like to be able to tell the board members (who are all volunteers) what to expect. 

I carry stuff uphill for others who get all the glory.

Link to comment
Share on other sites

I can't say I have a lot of experience with this (although I do have some).  One question jumps out at me - does the sponsor have any assets (e.g. real estate)?

There is technically a premium that PBGC will want if there are assets, and it is not small.

Link to comment
Share on other sites

I have two small plans going through a distress.  The biggest hurdle is getting the attention of someone at the PBGC.  I find this is very difficult for small plans.  If you can get a person to talk to, just be upfront with them and advise your client to do the same.  The PBGC is very diligent about looking for hidden assets so warn you client they will need to open their books.  Also, try to bill your services frequently because you often don't get a lot of warning before the PBGC takes the trust assets.  The PBGC will pay for your services, but might be easier to get paid before the PBGC has control   We were worried they would force the owner to take a benefit cut, but so far, they haven't. 

For one plan with about 10 people, the PBGC moved relatively quickly once we got their attention, about 4 months.  I have another plan with 5 people we have been pleading with them to take over for 3 or 4 years.  The sponsor hasn't filed any 5500s or paid PBGC premiums  for years but we just can't seem to find anyone who cares.  So, mixed bag.

 

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.

Link to comment
Share on other sites

Effen, your second case is similar to what I experienced almost 20 years ago.  When the client's attorney came to me the sponsor was out of business (due to owner medical issues) and the plan was underfunded, with a few years of no admin, valuations, etc.  First thing I did was contact PBGC, called a few times, spoke to several people, trying to get their attention and point out that it would be better if they took the plan over sooner rather than later and before burning through the plan assets with fees.   No one was interested.  

I carry stuff uphill for others who get all the glory.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...