Is purchasing guaranteed partial life annuities (not their entire bene

[Guest Bruce Johnson]

SFAS No. 88 requires accounting for a settlement if a)irrevocable action, b)relieves plan of primary responsibility for a pension benefit obligation, & c)eliminates significant risks related to the obligation and the assets used to effect the settlement.

I have a plan that purchased guaranteed life annuities for retired participants. However, the benefit purchased for each individual was approximately one-half of each retiree's total plan benefit. The plan maintains an obligation for each retiree. Based on the description above, I believe this is a settlement.

However, SFAS No. 88 Q&A #8 asks a similar question and the answer is no. It gives a specific example (different from my situation) where limited-term life annuities were purchased for participants, and the plan maintained some liability for those participants.

Would my situation constitue a settlement? Why or why not?

[david rigby]

It's not clear to me that your situation is the same as Q&A-8. When you say "partial", do you mean that $X (orY%) of the life annuity is paid by the insurance company TO the participant, or is it paid to the trust?

If the insurance company is paying to the trust, then NO settlement has occurred; this would be merely an "investment" of the trust. If the insurance company is paying directly to the retiree, Q&A-8 can be interpreted to define your situation as not a settlement. Still a good question. (I have a hard time understanding why a trust would purchase such insurance contracts.)

Other point is the word "significant". See Q&A-18. I also suggest that the determination of significant should be related to the entire PBO of the plan, not merely the PBO of the retirees.

Might be that the auditor has an opinion on this Q&A.

[Guest JAREL]

If the retiree is entitled to $100 per month for life and the annuity purchased will pay $50 per month for life, you have a settlement. If the annuity purchased will pay $100 for life (up to 5 years), you do not have a settlement.