Plan Termination Liability

[emmetttrudy]

Without actually performing the calculations of plan termination liability is there any reasonable way to estimate the PVAB for participants only knowing the Funding Target for a frozen plan? Plan Sponsor thinks difference b/t Funding Target and Market Value of Assets is what they would need to fund to terminate the Plan and pay everyone out 100% of their benefit. This is not the case, I know typically the lump sums are greater than the ongoing liability. Is there a "rule of thumb" about how much?

[SoCalActuary]

Hire a competent pension actuary.

[emmetttrudy]

I should mention that the client has the IAS19 report for the Plan as well. Is the benefit obligation (ABO) calculated under these standards a good estimate of the plan termination liability?

[david rigby]

Hire a competent pension actuary.

This is the correct solution.

I should mention that the client has the IAS19 report for the Plan as well. Is the benefit obligation (ABO) calculated under these standards a good estimate of the plan termination liability?

Without reviewing the report, no one can answer this question, but the actuary you hire will review and provide an answer.

[Effen]

Plan termination liabilities literally fluctuate every day, probably every minute of every day, as the market changes and the insurance companies try to work their own internal magic. The best way to find out what the market rate of the plan's liabilities is would be to ask an several insurance companies to quote it - generally they will do this for free, but many brokers are willing to help you for a fee. Most brokers will do all the leg work and will quote the plan for free on the assumption that you will eventually let them broker the deal when it happens at which time they will take their slice of the pie.

If the plan pays lump sums it should be fairly simple for the existing actuary to tell you what the plan term liability is based on the current lump sum rates. Other than that, the actuary should also be able to tell you if the current funding target is most likely higher or lower than a plan termination liability. In most instances right now today, it is probably a low estimate since annuity rates are a little lower than the segment rates, but there are always exceptions.

SoCal's advise was the best - hire a good actuary, or if you already have one, ask him or her.