PBGC termination

[Dinosaur]

We administer a DB plan that is PBGC covered. There are 98 participants in the plan. The plan sponsor plans to purchase annuity contracts for all the participants since lump sums are not paid (and they do not want to amend to allow for this option). There are some participants in pay status and some active and terminated participants with deferred benefits. Benefits are frozen as of 12/31/2004.

We plan to choose August 15, 2010 (or 8/31/2010) as the plan termination date (due to the 60 day notice). Can the plan sponsor purchase the annuity contracts before the plan termination date? If so how can we file the Form 500, etc. with 0 participants as of the plan termination date?

Any thoughts?

[Andy the Actuary]

So long as you go through the standard termination process, I would expect you should be fine. Even though essentially sanctioned by the PBGC on their website in a Bluebook Q&A, the PBGC will be very unhappy if you do not go through the Plan Termination process.

A few years ago, a client shut down their operations suddenly. In accordance with the Plan, lump sums were distributed. Because there were no Plan participants, the Plan sent the PBGC a letter in accordance with the aforementioned Bluebook and did not file for a PT. Now mind you we are talking about maybe 25 participants with total liabilities of $700K and the Plan made 100% of the distributions. The PBGC was totally miffed and audited the Plan. The bottom line is there was no problem but the client had to pay outside professionals to deal with the PBGC. In the end, we filed a standard termination filing with values reported as of the benefits distribution date.

You may want to talk it over with legal counsel but the suggestion would be to buy the annuities, file the forms as of your proposed termination date, and show values as of the distribution (i.e., annuity purchase) date.

One question would be do you need to provide for 60-day delay if all obligations have been irrevocably settled? In short, who would you give notice to if there are no participants?

[ScottR]

Lump sum payouts are likely to be a whole lot cheaper than annuity purchases, so they may want to re-think that decision. Why not give the participants an extra option, especially if it's going to save the employer money.

WRT the PBGC filing: I'd be inclined to fill in the current number of participants on the Form 500. When you file Form 501, show all the annuities that were purchased. This will fit in better with the standard termination procedures, and will make the PBGC happy.

I believe participants must be given at least 45 days' advance notice of the insurer from whom annuities will be purchased, and that may very well push the purchase date beyond the plan term date.

... Scott