Quiz 22: Plan Termination Insurance for Single-Employer Pension Plans

Business

Plan termination Plan termination should be event which is identifiable or else the details on termination would be difficult to assess. Plant termination can take place either voluntary or involuntary. In case of voluntary termination, termination would not be proceeded if there is violation of any terms and conditions of existing collective bargaining agreement. Voluntary termination can take place in either standard way or distress termination. Over-funded defined benefit pension plan is when the value of plan assets reported in asset section is higher than net accumulated obligation payable. The issue with termination of plan which is over-funded is that it would be difficult to determine the allocation process for assets. The assets are in excess of liabilities and thus the excess assets would be provided to employer who contributed to the assets. However there be various taxes levied on these distribution. The cost of termination for employer would increase.

Pension Benefit Guaranty Corporation (PBCG) deals with the provisions that are laid down to encourage and manage the voluntary pension plan for the participant's benefit that makes timely and uninterrupted income in the form of pension funds available to them after retirement. Termination of a plan can be a voluntary and involuntary decision. However, such termination insurance by PBCG is available in case of  defined benefit plan having voluntary termination. Under a single-employer plan approach, the plan termination insurance is applicable only in two types of termination that too after providing appropriate information to PBCG regarding the same. Types of such termination are- 1.  Standard Termination Under a single-employer plan, an employer can terminate a pension plan when it can actively present the fact the required fund to fulfil the plan liabilities at the time of final distribution is available with the employer. 2.  Distress Termination When the plan sponsor i.e. the employer meets with the following requirement- a. Liquidation in bankruptcy or insolvency. b. Reorganization in bankruptcy or insolvency. c. To avoid any unwanted cost arising out of the pension plan caused by decreasing workforce. After confirming the requirements and decision taken by PBCG, stated type of termination as per the decision will be applied. Thus, the pension plan established as defined benefit plan under the voluntary termination is covered by plan termination insurance in case of above stated methods of termination only.

Plan termination Plan termination should be event which is identifiable or else the details on termination would be difficult to assess. Plant termination can take place either voluntary or involuntary. In case of voluntary termination, termination would not be proceeded if there is violation of any terms and conditions of existing collective bargaining agreement. Voluntary termination can take place in either standard way or distress termination. The benefit of variable rate structure premium is that private sector would continue with the defined pension plan. This is because if the premium provided is lower than sponsors could exit from the plan and thus there would be difficulty in implementing new pension defined plans. If the premium structure is fair that is based on unfunded vested benefits than it would provide adequate insurance coverage and also help to set a proper retirement benefit system.

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