Plan Asset-irrevocable annuity contract

[Randy Watson]

Someone please tell me if I'm wrong, but I thought that an irrevocable annuity contract purchased in conjunction with a plan termination was not a plan asset.

[Effen]

??? I don't understand the question.

The impact on the plan is the same (other than the cost) whether it pays the participant in the form of a lump sum or it pays the insurance company for the annuity contract. Before the plan termination the money was an asset of the plan, after the termination it is a asset of the participant.

A few more details would be helpful. Why are you asking?

[david rigby]

I agree with Effen (I think). If the use of "irrevocable annuity contract" is meant to say that the plan purchased a single premium annuity contract for the participant's benefit, then the plan has relinquished assets in exchange for releasing liabilities. Thus, the plan no longer has any responsibility for that participant, and the contract is not a plan asset. In this case, a plan termination, it is difficult to imagine any other use of this terminology.

[SoCalActuary]

I am concerned that the annuity contract must meet some strict standards of protection to the employee.

If it protects all the employee's benefit options properly, or if it is done by decision of the plan participant with spousal consent, then I would be comfortable that the plan has released all its liabilities.

If the funds were simply put into a standard variable annuity contract, then the important DB protections for the employee are lost. Before doing the purchase, I would defer to some of the annuity specialists who are ERISA-trained.

[AndyH]

I know only enough about this subject to be dangerous, but my guess is that the answer to the original question depends upon whether or not the contract has a "participation" feature, i.e. the sponsor continues to share in the risks and rewards of experience.