plan termination

[Gary]

a plan sponsor/owner is terminating his plan.

it is pbgc covered and other than owner there are 3 employees.

if each chose a lumo sum the owner would get say 300k and forfeit rest of pension.

however, one participant in pay status has a lump sum payout value of close to 600k if he takes remaining distribution in lump sum.

excpet the participant wants to continue payment as annuity. (100% j&s mind you)

insurance annuity quotes have averaged about 900k. ouch!

i suppose to due low interest rates, fees, commissions and who knows what.

the owner is in his 70s and closed his company.

if they buy annuity owner gets $0 instead of 300k (per above).

what to do?????

they can beg participant to take lump sum

they can have owner maintain plan (thought MRCs will continue, etc., not desirable) sponsored by himself as sole prop.

or maybe go through a distress pbgc termination

i haven't spoken to owner but i believe he does not want to sacrifice entire pension.

thanks

[SoCalActuary]

If this is PBGC covered, my answer is turning it over to them as a distress termination.

If not, it is cheaper to just keep the plan in force, pay his own annuity benefits as well as the other retiree, and let the money run out later.

Neither choice is a good one. Go buy some winning lotto tickets, or some Executive Life annuity contracts.

[Andy the Actuary]

what to do?????

they can beg participant to take lump sum

i haven't spoken to owner but i believe he does not want to sacrifice entire pension.

thanks

Surely you are joking that you would suggest this?

[Effen]

I agree with Andy, why are we talking about this?

If it is covered by the PBGC, there really aren't any options. PBGC will require the non owners to be paid or they won't approve the termination. I have heard that they will also "force" the owner to waive benefits in these small plans. I don't think they will take it as a distress, but you can try. You would need to prove the owner doesn't have any assets he can sell to fund the plan, which usually ends the discussion. The PBGC isn't stupid, or forgiving.

You can't force anyone to take a lump sum, especially someone who previously elected a J&100. Some argue that you really can't even ask the question to a retiree. Plus, if you do, and they decline, and the insurance company knows they declined a lump sum for a second time, how much do you think that annuity will cost?

The owner either needs to fund the plan, waive his benefit, or keep it going.