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Plan Termination

Pension plan terminations may be standard, distress, or involuntary in nature. The Single Employer Pension Plan Act of 1986 provides extensive detail regarding the conditions of each, not relevant here. What is relevant is that all terminations must be reviewed by the Pension Benefit Guarantee Corporation (PBGC) (see below).

When plans are terminated by employers, benefit accrual ceases. With defined contribution plans, the employer may cease contributions and pass fund management responsibilities to an insurance company. With defined benefits plans, the options are more complex, as well as controversial if fund assets do not at least equal the present value of promised benefits. However, if fund assets exceed pension liabilities, the excess assets may legally be reverted back to the company, although that practice has been severely hampered by the Pension Protection Act of 1990. (As of 2002, companies must pay a 50 percent excise tax on any surplus funds pulled out of pension plans.)

Inside Plan Termination