Valuation of Plans Pre-Merger

[Guest blackacre]

One employer may merge into a larger one. The large company has a DB plan and a 401(k) with a 3% match. The smaller firm has a PS/DC plan with a 3.5% discretionary employer contribution (which has routinely been made) and a dollar for dollar match up to 6% of salary for participants.

Obviously, employees at the smaller company are loathe to lose their 401(k) with an effective 9.5% of salary contribution from the employer.

The formula for the new employer's DB plan has a rule of 80 for vesting (age plus years of service = 80) and an accrual rate of 1.65% x years of service x highest salary.

I am wondering if it is possible, outside of hiring a consultant or actuary, to value and compare the new DB plan with the existing smaller company's PS/401(k) plan.

Any thoughts would be greatly appreciated.

[david rigby]

Those of us who are consultants and/or actuaries would probably prefer to be engaged to provide such service (i.e., for a fee).

[Guest blackacre]

I'm sure you would. If there was money available to do that, that's what I'd be doing. But, I asked a question on the board and I hope someone will answer.

[Larry M]

I agree with Pax's comment - this is the stuff by which we make a living, and feed our families.

With that in mind, perhaps we can help you do it yourself.

When you say "compare", from what standpoint?

If you are looking at it from the employee's point of view, then you can make a projection of the benefit the employee will receive at various times under the large company's combined plans as opposed to the smaller company's dc plan. To value the db plan's monthly benefit, you may have to use a rough approximation determined by going to one of the annuity pricing services on the net and finding out how much the monthly benefit will cost at each age. Yes, it will be a bit of work, but, if you have the time, you can manage it.

If you are concerned with the cost to the employer, well, that's another story - and we are back to pax's comment.

[Guest blackacre]

Thanks for your response. I had thought to compare the total amount in the 401(k) account at different times under stated assumptions and determine the DB benefit under the same time frames. Next, I'd see what annuity could be purchased with the 401(k) amount and compare that to the DB benefit. Sounds like that is a good approximation.

That's all I was asking. I think that there are many people on this site who charge for their time or have good and useful things to do with the time even if they are not billing. The value and appeal of the message board is that these people are willing to share an idea, thought, and experience with their neighbors.