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Electing to terminate a defined benefit pension plan is one of the most effective ways to eliminate long-term risk. But for many organizations, plan termination is not a simple process – it involves rules and processes dictated by government regulations. Decisions have to be made with the best interests of your participants in mind, and longer processes often equal greater costs.
In this article, we explore how the plan termination process works, the benefits of a faster plan termination, and how to find the best partner for the process.
The pension termination process is a series of steps a plan sponsor undertakes to terminate their Defined Benefit pension plan, often to eliminate inherent risks associated with Defined Benefit designs.
It is a complex and regulated process, often taking 12-18 months to complete. Organizations must scrub data, send participant notifications, file with the IRS and PBGC, and more. And longer terminations often increase interest rate risk and administrative costs.
Pensions also play a significant role in employee benefits, and organizations are conscious of the problems a poor termination could produce.
Once a plan sponsor has decided to terminate its plan, there are several benefits that a quick termination can provide, including:
Cost Savings: A faster termination can help plan sponsors save on their annual expenses by avoiding additional PBGC Premiums.
Operations: With a plan off the books, teams no longer need to dedicate time or energy to plan management.
Reduced risk: By reducing the time it takes to terminate, plan sponsors reduce the risk of a market change that could affect plan funding.
On top of multiple regulatory requirements, most pension terminations involve several service providers, leaving plan sponsors to coordinate the timelines and activities for actuarial, administrative, and annuity services. This can leave even the most organized plan sponsor in the hands of their partners' timeline.
At October Three, we built our turnkey plan termination service in direct response to what plan sponsors have requested: a faster, more reliable path to termination that minimizes the effort and involvement of their staff.
Often, organizations came to us frustrated that their existing providers were extending timelines and prolonging risk exposures. Our approach addresses these concerns by streamlining the termination process to deliver expected results in a fraction of the time.
Our proprietary turnkey plan termination process offers a fully integrated solution, creating cost and process efficiencies. A one-stop shop for pension termination that allows us to:
Manage the project, so you don’t have to: One vendor, with clear project leads, to proactively address concerns, prevent standing issues, and drive the termination to the end. Our project management minimizes the time and effort of the plan sponsor.
Achieve aggressive timelines: Most firms quote termination at a 12 – 18-month timeframe. We have a proven record of completing the regulatory process in as little as 4 – 6 months, producing significant savings on premiums.
Execute customized participant communication campaign: Production and distribution of all participant communications to achieve the desired results. Coordination with the selected insurance company to ensure all protected benefits for all participants are paid and transitioned appropriately.
Terminating a pension plan imposes significant financial, regulatory, and political risk. Our goal is to help you feel secure navigating that risk. With a consistent track record for performance, our team possesses the expertise and experience to guide you through the termination process with accuracy and efficiency.
Contact our team and receive a complimentary Plan Wellness report from our Plan Termination consultants. This report will outline current opportunities to achieve plan termination, no matter what step of the process you’re on.