Terminate a plan in phases.

[david rigby]

I have a frozen DB plan that the sponsor wants to "terminate" in phases. Liability is about 1.8 Million, assets about 1.2 million. Plan has active EEs (all vested), VTs, and retirees.

1. Buy an annuity for retirees now, about 800K. About 175 participants remain. There is no resolution to terminate yet.

2. When the sponsor has more cash, plan will undergo a standard termination for remaining participants. This could be in 2 months or 12 months, etc.

Any problems with this that I have not noticed?

[AndyH]

Just an opinion, but I'd sell the retirees last. I would think the plan could have more favorable investment experience and mortality experience than an insurer would assume, thus the longer you wait, the less money the sponsor "loses" by annuitizing.

My experience with selling retirees is than insurers have wide fluctuations in their purchase prices based upon their retiree "inventory" and available cash at a particular time, so I would think it is worth obtaining quotes right away, but waiting for the right time to close the deal.

An annuity broker once told me there was an optimum time to sell, but I can't recall what that time was; the important thing is that one might exist.

It also might be less costly to offer lump sums than require annuitization, particularly if it's a heavy female population.

Just a few thoughts for what it's worth.