DB Risk Transfer Process


Institutional Advisors DB Plan Termination Process

There are numerous issues to consider when developing the optimum approach to DB plan termination. Institutional Advisors brings 60 years of experience in process management, actuarial guidance, and legal support. We work with you to identify and evaluate the facts, objectives, and considerations, to adequately address the pension de-risking process and ultimate termination of the plan. Our plan termination process eliminates all risk and ongoing expense for plan sponsors, delivers the most cost effective permenent relief available in the industry.

Terminating a DB plan takes approximately 12 - 18 months. Plan terminations without an IRS determination letter take approximately 12 months. Plan Terminations with an IRS determination letter takes approximately 18 months.

5 - Step Plan Termination Process

Step 1: Establish single employer plan. The plan will receive the assets and liabilities that withdrew from the Pentegra Multiple Employer Plan.

· Plan consultant reviews Plan Documents and Adoption Agreement and consults with actuary and attorney to fully understand the plan.

· Resolutions drafted to adopt the Volume Submitter Plan Document and Adoption Agreement for a single employer plan.

· After withdrawal, amend plan to allow for lump sum distributions for all participants.

Step 2: De-Risk the plan. The risk may be transferred to participants by offering an immediate lump sum benefit from the DB plan in lieu of a monthly annuity sometime in the future. The plan actuary and consultant will:

· Identify the population that will optimally manage the impact on cash flow and accounting costs.

· Calculate Lump Sum amounts for identified plan participants.

· The interest rate and life expectancy tables used must produce values that meet or exceed a prescribed IRS minimum.

· Ensure that the election does not result in discriminatory payouts.

· Review/prepare notices to participants (Notice of Intent to Terminate, Notice of Plan Benefits, Notice of Annuity).

· Participants must be given the option to accept or reject the offer.

· Spousal consent requirements and other distribution rules must be followed.

· Participants must be given the right to roll over the lump sum into an IRA or other qualified vehicle.

· Explain the termination letter and package and why the plan is terminating.

· Explain the options of the annuity, as well as the option to roll dollars into their 401(k) plan, IRA, or other investment options.

· Walk each participant through the pros and cons of each choice and implications of taking a cash lump sum (taxes, spending habits, retirement).

· Assure that participants understand and are comfortable with their decisions.

Our organization had searched extensively for the right resource partner to assist us with our frozen defined benefit plan. We were very pleased to engage Institutional Advisors and have been even more pleased with their innovative approach to pension risk, cost-efficient deliverables, and attention to detail.”  Doug Wareham, President & CEO of Kansas Bankers Association.

Step 3: Prepare the plan for termination.

· Draft plan freeze/termination resolutions and plan amendment.

· Prepare Section 204(h) notice for plan freeze/termination.

· Prepare Plan termination checklist.

· File for termination with the IRS. (optional)

· Submit the termination notice that includes certified data on the plan's assets and liabilities.

· Review PBGC Form 500 and Certification.

· Issued a Notice of Intent to Terminate to affected parties other than PBGC between 60 and 90 days before the proposed termination date.

Step 4: Purchase single premium annuities for remaining participants.

· Creates an RFP for the insurance carriers to bid on single premium annuities.

· Narrows field to appropriate insurance carriers and request preliminary bids.

· Informed participants what private insurer an annuity is being purchased from no later than 45 days before the distribution of plan assets.

· Send participants a notice that includes the benefit they earned and data the plan used to calculate the value of the benefit.

Step 5: Final termination Manager and Actuary actions:

· Determine plan obligations and total accrued liability.

· Assets and data are transferred to the insurance carrier.

· The insurance carriers begin payments to retired block on agreed commencement date

· Provide either money to pay missing participants' benefits or the name of the insurer holding their annuities.

· Report any excess funds to the IRS.

· Complete final annual Form 5500 report (within 7 months of distributing funds).

· Tax reporting for distributions (by January of following year).

All services are bundled together for a seamless termination with a fee structure that makes Institutional Adviors the industry leader. Final independent legal costs typically range from $10,000 - $12,000. All fees can be paid out of the Plan.