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DB plan annuity costs


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DB plan starts termination process. 8 out of 30 participants choose annuity instead of lump sum. Lump sums are paid out. When annuity information and quotes are assembled, the cost is up to double the lump sums.

Can the termination be amended to only pay out the lump sums, and the sponsor wait 3 to 5 years to see if interst rates change and therefore cost of annuities comes down?

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Plan termination is expected to be an orderly and time-bound process. Regulatory oversight expects it to be completed without unreasonable delay; while not an absolute, this usually means within 12 months. (That does not mean you can, just because you want to, stretch it out to 12 months if there are no impediments.) It may be reasonable to pay out lump sums sooner than other payments, based on administrative convenience, but delaying the purchase of annuities by multiple years will (likely) fail the "smell test". Taking such action could produce a regulatory conclusion that the plan was not terminated, and might require reversing any actions already taken.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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