Terminating DB Plan

[Guest Bob Lees]

In a DB plan that is currently making monthly payments out of current plan assets to retirees, what happens to these benefits when a plan is terminated? do they convert to lump sums? do they purchase annuities for the retirees? Thanks.

[Andy the Actuary]

In a DB plan that is currently making monthly payments out of current plan assets to retirees, what happens to these benefits when a plan is terminated? do they convert to lump sums? do they purchase annuities for the retirees? Thanks.

The plan termination cannot eliminate the defined benefit feature though the plan could be amended to allow for a voluntary lump sum election. Once the pension has started, the retiree retains the right to continue the option unless he/she voluntarily elects otherwise. If the case, the Plan must purchase an annuity.

[SoCalActuary]

The plan administrator must continue to protect the rights of the participants.

So, you buy annuities or you offer lump sums if your plan allows it.

You give disclosures.

The plan sponsor remains liable for the cost, even if the annuities are based on 2.5% interest rates.

Or, you throw the whole problem onto the PBGC.

[david rigby]

Or, you throw the whole problem onto the PBGC.

Just so the original questioner understands, you cannot do this in a Standard termination.