What Is A Plan Termination

[Andy the Actuary]

Back in the good old days (they were more old than good!), it was common practice to fund a DB plan by purchasing paid-up deferred annuities. Each year, additional annuity contracts would be purchased for increase in accrued benefit. Thus, the Plan was fully insured and except for some final benefits cost, was pretty routine to terminate.

So, presuming the Plan/Trust so permits, the Plan can still fund with paid-up annuities.

Suppose we have a frozen non-collectively bargained single employer frozen DB plan that is covered by the PBGC. The Plan has not been amended to terminate. An annuity quote is obtained and the Plan is sufficiently funded to purchase nonparticipating annuities with precisely zed dollars remaining.

Could this annuity purchase be effected as an investment decision? If so, could the plan then be terminated without the PBGC having conniption fits? Same questions but annuities are purchased only for those in pay status and terminated vesteds?

[david rigby]

I think your scenario is, or should be, permissible.

Partially related comment:

If the plan states that excess assets are allocated to participants, and if there would be non-zero excess assets under a standard termination, would your proposed scenario cause a fiduciary violation in any way?

[Andy the Actuary]

I think your scenario is, or should be, permissible.

Partially related comment:

If the plan states that excess assets are allocated to participants, and if there would be non-zero excess assets under a standard termination, would your proposed scenario cause a fiduciary violation in any way?

Couldn't the same be said of any plan that was overfunded prior to 2008? Shouldn't the assets have been moved to money market funds to ensure preservation of principal?