The process of terminating a defined benefit (DB) plan is lengthy, time consuming, and costly. An actuary, trust custodian, attorney, trustee, and investment advisor can assist with many of the duties. In this DB Digest article, Milliman’s Stephanie Sorenson discusses the multiple tasks that plan administrators must accomplish in preparation for a plan termination.
Here’s an excerpt:
It is important to review and validate the participant data. Quality data is critical to the termination process. Insurer quotes will reflect the accuracy, actual or perceived, of the data provided to them.
Also the Pension Benefit Guaranty Corporation (PBGC) requires that the plan sponsor maintain the participant and plan data for six years after plan termination (the date on which PBGC Form 501 is filed). The data should be gathered during the plan termination process and remain accessible during the six-year period.
Does the data have valid identification numbers for all participants? Does the data contain valid dates of birth, hire, participation, and termination? If not, review employment records and update.
Does the data include addresses for all participants and beneficiaries? Are the addresses valid? Do any participants reside outside the United States? Many notices are required to be sent during the termination process. An address and death search for all inactive participants may be prudent.
Verifying addresses prior to termination can save time and frustration.
Have all of the accrued benefits been calculated and certified? If yes, does the data include the information that was used to calculate the stored accrued benefit? During the termination process, a Notice of Plan Benefits will need to be supplied to all participants. This notice is required to provide the personal data used to calculate the participant’s accrued benefit along with a statement requesting that the participant correct any information they believe to be incorrect. If the plan has frozen accrued benefits but the calculation data is not available, the best available data must be provided to the participant on the Notice of Plan Benefits along with a statement giving the participant the opportunity to provide the missing data.
If benefits are not calculated and certified, does the data contain all of the information necessary to calculate the benefits? Final benefits will need to be calculated, not estimated, for all participants.
Data is fluid and constantly changes. Participants move, die, quit, get married/divorced, and retire during the termination process. Ensuring and maintaining accurate data is key to preparing for a plan termination.