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Plan sponsor in receivership

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DB plan sponsor is an insurance company, currently in receivership under its state insurance department.  This status has not altered the plan's requirement to do annual valuations, file 5500, etc.; the actuary prior to receivership is still in place.  The prospects for rehabilitation (and/or coming out of receivership) are virtually nil.  While there is no formal statement yet from the state DOI, it appears likely the DOI will seek to have the PBGC take over the plan.  (The plan actuary has not been part of discussion, if any, between the DOI and the PBGC.)  Most recent AFTAP is around 100%, but a termination ratio is estimated around 70-75%.  The plan has been frozen for several years.

The plan has an unlimited LS option.  The current question is whether any PBGC regs and/or practices would require the plan to suspend (ie, before any formal action by the PBGC) the use of the LS option for anyone currently reaching a benefit commencement date (retirement or otherwise)?   My review found nothing on point; checked all the Blue Books, did not see anything in the regs (although that might be easy to miss).  Any relevant experience?  Ideas/suggestions?

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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I do not know anything that would help you answer your question.

But the circumstances you describe suggest another question:

Does an actuary assume a pension plan’s current provisions and an absence of change in the provisions (until the plan’s sponsor or administrator instructs different assumptions)?

Or does an actuary’s professional conduct require her to make assumptions about a plan’s likely future provisions, even if one’s client has furnished no such instruction or guidance?

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania



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David, FWIW, here is a fairly recent scenario I am familiar with.

Sponsor of a frozen PBGC-covered plan was headed toward likely bankruptcy. The Plan permitted lump sums in many situations, and although it was significantly underfunded on a PBGC termination basis, its AFTAP was high enough that lump sums were not restricted by the funding rules.

The PBGC was well aware of this case and had been closely tracking the employer's finances through its various monitoring activities. Bankruptcy lawyers with ERISA expertise were assisting the employer. Right up until the official date of PBGC takeover, the plan continued to pay the lump sum value of the participant's full accrued benefit where there was a valid lump sum election, even if that accrued benefit exceeded the amount that the PBGC would guarantee if paid as a life annuity.

Peter asks an interesting question but it's beyond my expertise.

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I think the insurance law requiring receivership would be a state law similar to federal bankruptcy law - potentially triggering the limit on prohibited payments such as lump sums under 436(d)(2). Plan should confirm that with counsel. 

Assuming that's correct, if the actuary certifies that the AFTAP for the plan year in which the lump sum would be paid is at least 100% (without taking into account the segment rate stabilization relief under 430(h)(2)(C)(iv), the plan can pay the lump sum. Otherwise it can't.

Presumption rules based on prior year's AFTAP don't apply in cases of bankruptcy (see 1.436(d)(4)(v)) - (so can't assume same AFTAP as last year until start of 4th month, 10% lower than last year's AFTAP at start of 4th month) - so you'd have to wait until the actuary really certifies the plan meets the above criteria to pay a lump sum during the plan year. 

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