SOA 2011 Annual Meeting & Exhibit Oct. 16-19, 2011 Session 118 OF, Plan Termination Seminar: Session 4 Getting It Done Moderator: Brian C. Donohue, FSA, EA, FCA, MAAA Presenters: Karen Ambrose Monica L. Gajdel, FSA, EA, MAAA Ellen L. Kleinstuber, ASA, EA, FCA, MAAA, MSPA Primary Competency Technical Skills & Analytical Problem Solving
Session 118 Plan Termination Seminar Part 4: Getting it Done! Presented by: Karen Ambrose Mercer Monica Gajdel Aon Hewitt Ellen Kleinstuber The Savitz Organization Primary Competency: Technical Skills & Analytical Problem Solving Agenda Overview of the plan termination process Prior to the plan termination date During plan termination Annuity purchase After distribution Early planning activities 2 1
Pension Plan Termination Overview Overall, a plan termination entails freezing the plan (if not already frozen) and paying out all benefits Can take at least two years from start to finish (from initial planning to finishing the PBGC audit) Specific requirements and deadlines of the PBGC, DOL and IRS While a termination date is one specific date, the actual distribution of assets will normally occur many months after this date Plan Termination involves a coordinated effort among HR and finance Plan consultants (actuary, administrator, investment advisor, legal consultant) ERISA counsel Annuity placement advisor Communicators Trustee 3 Distribution Options Upon Plan Termination Upon plan termination, benefits can be distributed in a variety of ways: Purchase annuities from an insurer; Offer immediate lump sums upon plan termination; or Provide an elective transfer of benefits to a defined contribution plan (rare) Active participants can be offered a lump sum option as part of a plan termination One or a combination of these distribution options may be used to pay out benefits Cannot cutback protected benefits Any annuity purchase must include all benefits payable under the plan that exist as of the plan termination date and allow participants to grow into early retirement benefits, subsidies, supplements All participants immediately vest upon plan termination (if the plan does not have deemed $0 cashout language, this includes terminated participants who have not forfeited non-vested benefits prior to plan termination date) 4 2
Providing Lump Sums to Plan Participants Participant groups Typically provided to active and terminated participants Retirees typically are not offered a lump sum Calculations Must calculate minimum lump sum based on required assumptions Early retirement subsidies are not required to be included in the lump sum but must disclose relative value Requirements and considerations Must amend plan to provide lump sums upon plan termination to active participants (and deferred vested if not already available) Elective option (if over cashout threshold) and subject to QJSA notice and consent requirements Must provide relative values and offer an immediately payable annuity but default to deferred annuity option if no election Participants can roll over to avoid immediate taxation and potential excise tax Communications should be clear (e.g., potential participant lawsuits) 5 Main Steps to Terminate a Pension Plan Decide to Terminate Tell Participants, PBGC and IRS Distribute Assets Resolve to freeze (if not Notify participants i t of plan Receive participant i t already frozen) and terminate the plan payment elections Purchase annuities Commit to making the plan sufficient (if underfunded) Reallocate plan assets to de-risk investment platform Adopt necessary amendments freeze and termination (Notice of Intent to Terminate) Request a determination letter for the terminating plan (Form 5310, 6088) Communicate actual accrued benefit and general benefits under the plan to all participants (Notice of Plan Benefits) Submit Form 500 to PBGC including EA s Certification of Sufficiency Distribute annuities and lump sums Submit Form 501 and Form MP (missing participants) to PBGC and respond to PBGC audit Receive excess assets, if any Close plan trust 6 3
Standard Plan Termination Timeline: Prior to the Plan Termination Date 7 Notice of Intent to Terminate and 204(h) Notice Notice of Intent to Terminate generally a standard communication Include a notice of benefit freeze if plan is not already frozen May include list of annuity providers May want to set participant expectations by including a cover letter discussing the plan termination and what participants can expect 8 4
Plan Amendments Corporate resolution establishes the plan termination date Plan amendment needed to: Freeze participation i and benefit accruals as of the termination ti date (if hard freeze not already in effect) Incorporate all required provisions to maintain qualification not already in the plan document (through year of plan termination, but not beyond) Clarify plan language where different than administrative practice Add or modify reversion language if excess assets exist Add optional lump sum and define actuarial equivalence basis Give careful consideration to stability period and look-back month Balance desire to get potentially most favorable basis with administrative complexity and participant communication issues Look at plan provisions that will create challenges for annuity carriers can they be amended out of the plan? Redundant optional forms Ancillary death or disability benefits not subject to anticutback rules 9 IRS Determination Letter (Form 5310) for the Terminating Plan Requesting a determination letter slows down the termination process and asset distribution Lately, it takes more than a year to receive a determination letter from the IRS Most sponsors wait to distribute until letter is received Requires critical planning for coordination of participant notices and elections Why request a determination letter? Trustees may require a determination letter in order to transfer assets to an insurance company for the annuities purchased Provides an extension to distribute if requested prior to PBGC notification via Form 500 Provides that the plan is qualified upon termination when all assets are fully distributed May help identify any issues prior to distribution IRAs may require proof that a rollover was from a qualified plan Most critical for plans with excess assets 10 5
Completing the Form 5310, 6088 and Sending the Notice to Interested Parties Notice to Interested Parties (NTIP) must be distributed at least 10 days, but not more than 24 days, prior to the date Form 5310 is filed Must include the proposed p filing date in the notice Consider if feasible to send NTIP with other required notices Form 5310 is not overly complicated to complete Form 6088, however, is not necessarily so easy! Provides information for the IRS to review any compliance testing problems After 5% owners, must list participants in descending order of current three-year average 415 compensation For former employees, need three-year average at termination or retirement If accrued benefit based on other than three-year average, need to show that as well on an attachment Must include years of participation and years of credited service Need to estimate the present value of benefits at the plan termination date Use lump sum value if provided for under plan terms Estimate annuity purchase assumptions for other distributions 11 Standard Plan Termination Timeline: After the Plan Termination Date 12 6
Notice of Plan Benefits Standard Termination Filing Instructions provide excellent guidance on the standard termination process, timing and required notices (including several model notices) Notice of Plan Benefits must include general information about plan and data used to calculate each affected participant s benefit Required data varies by participant category (in payment, election pending or nonconsensual lump sum, all others) Dates of birth / hire / termination, credited service, compensation history (if applicable) Allow participant opportunity to make corrections Include best available data and allow participant to provide missing information Some plan administrators i t may want to combine benefit election kit with Notice of Plan Benefits 180 day QJSA notice period makes this feasible if comfortable making distribution before receiving IRS determination letter or letter is timely Participants reporting data corrections can cause delays in making distribution Watch crossing stability periods 13 Notice of Plan Benefits (continued) Issues and challenges (not necessarily an exhaustive list) Communicating data for plans with multiple benefit structures Communicating sufficient information to participants without overwhelming them Discovering prior calculation errors Uncovering new data Participants past normal retirement date (suspension of benefits) or age 70 ½ (required beginning dates) Final QDRO determinations Preparing data for Notice of Plan Benefits may uncover need for EPCRS correction procedures to address qualification issues Given termination, may be advisable to use VCP even when selfcorrection is available 14 7
PBGC Form 500 and Schedule EA-S Form 500 is generally straightforward, but there are a few gotchas Active participant count includes terminated non-vested participants retaining credited service under the plan For latest date of providing NOIT and NOPB, take into consideration returned and re-issued mailings to participants Schedule EA-S requires enrolled actuary to attest that assets are sufficient to cover benefit liabilities Determination is as of the proposed distribution date Valuing plan assets Include receivable contributions in fair market value only if plan sponsor has signed commitment to make plan sufficient for termination (Appendix D in Standard Termination Instructions) Adjust for PBGC premiums and other plan expenses that t will be paid from plan assets prior to distribution date Valuing benefit liabilities Instructions provide guidance generally use the same assumptions as liabilities for Form 6088 PVAB Be prepared to reconcile the amounts on Form 500 to Form 501 15 Participant Elections and Distributions Elections needed if a participant can choose a lump sum Collect benefit payment election and rollover choice May need to collect beneficiary information for participants who elect annuity commencement Must meet all QJSA and tax notice requirements just like a regular retirement commencement However, existing retirement materials unlikely to have immediate annuity at any age or election to defer commencement Cannot provide QJSA notice more than 180 days prior to the annuity starting date Need to plan this process 16 8
Participant Elections and Distributions (continued) If terminated vested participants can elect a lump sum, those currently eligible to retire must be provided all optional forms of payment under the plan that for which they are currently eligible Those not yet eligible for early retirement must be offered an immediately payable QJSA, Qualified Optional Survivor Annuity (QOSA) or Single Life Annuity, depending on marital status If active employees can elect a lump sum, they must be offered the QJSA, QOSA or Single Life Annuity, depending on marital status Mandatory cashout rules apply, so consent to distribution isn t required for amounts less than $5,000 Must provide 30-day tax election period Important to anticipate participant questions Participant meetings Staff a call center Provide webinars Preferable not to collect proofs of birth or marriage 17 Standard Plan Termination Timeline: Annuity Purchase 18 9
Annuity Placement Overview Credit Quality DOL Interpretive Bulletin 95-1 Requires fiduciaries to conduct an objective and thorough process to select the safest available annuity providers Safest available is not defined but Bulletin indicates it is not sufficient to rely on rating services such as Standard & Poor s or Moody s Fiduciary should consider in addition to ratings: Quality and diversification of the insurer's portfolio Size of the insurer, compared to the proposed contract Insurer's capital and surplus levels Lines of business of insurer and other indications of exposure to liability Structure of the annuity contract and guarantees, such as the use of separate accounts Availability and extent of additional protection through state guaranty associations Bulletin acknowledges more than one company can meet requirements of safest available 19 Annuity Purchase Annuity Settlement (non-participating group annuity buy-out) Annuities are purchased to settle liabilities of a pension plan Irrevocable Transfer of assets and liability Must mirror Plan provisions Insurance company assumption of investment and mortality risk as well as plan administrative responsibilities Variables Which Will Define the Market Size of liability Cash versus assets in-kind transaction Retiree/Immediate versus non-retiree/deferred Plan provisions (e.g. cash balance, unrestricted lump sum distribution options, grandfathered or multiple benefit structures, employee contributions) Credit quality 20 10
Annuity Placement Process Pre-placement Activities Data readiness Identify placement objectives, review regulatory requirements Develop credit criteria and select universe Establish timeline, assign responsibilities Develop specifications, finalize and format participant data Placement Activities Send specifications to bid universe Perform detailed review of each proposal vs. specifications Evaluate, summarize and discuss preliminary quotes and other due diligence considerations Conduct placement day competitive auction Analyze and present final bids, consult on the final purchase decision Confirm placement with selected company Facilitate all placement documentation and coordinate transfer of funds Post Placement Activities Facilitate transfer of retirement payment data and responsibilities to insurer Coordinate submission of final data Review annuity contract, certificates Facilitate contract execution and release of certificates 21 Form 501 and Missing Participants Form 501 is the final PBGC filing required Must notify participants who had annuities purchased of insurer information ( annuity certificate ) t prior to filing this form Provides the PBGC with distribution information including the annuity provider and missing participants PBGC audits all plan terminations with over 300 participants PBGC will set an audit date based on the receipt of the Form 500 Must perform a diligent search for participants Diligent search must include use of a search firm and cannot be performed more than 6 months prior to sending the Notice of Intent to Terminate File the Form MP to provide missing participant information to the PBGC Either purchase an annuity for those not found, or Pay the PBGC (along with the Form 501 filing) to take the participants 22 11
Early Planning Activities Data clean-up Assess data for needs and holes Begin address search Perform accrued benefit calculations for frozen plans Review existing calculations for terminated vested participants Match data with the Social Security Death master to identify deceased participants and beneficiaries if possible Clean retiree data (beneficiaries) prior to annuity purchase Collect QDRO information and review 23 Early Planning Activities Collect and assess documentation (plan documents, prior benefit calculations) Monitor returned mail for bad addresses Review plan document for potential Voluntary Correction issues Terminated vested participants over 65 or 70 ½ Suspension of benefits Calculations Consider amending the plan $0 cashout language (must be in the plan 5 years) Eliminate optional forms Use of excess assets (must be in the plan 5 years) Lookback and stability period (1 year grandfather) Develop a game plan and overall timeline! 24 12
Appendix Required Participant Notices and Government Filings Participant Communications Notice Timing What s Included Notice of Intent to Terminate (NOIT) Notice of Plan Freeze (204(h)) Notice to Interested Parties 60-90 days before plan termination 45 days before benefits freeze 10-24 days before determination letter filing Plan identification information Statement that standard termination is intended Date of proposed Termination Statement that there must be enough assets to provide all plan benefits Statement that sponsor will notify participants in writing if termination does not occur PBGC s guarantee ends when assets distributed Note that participants will receive benefit information at a later date Can add information beyond legally required Inform participants that benefit accruals cease as of certain date Only needed if plan is not already frozen Can include copy of Board resolution Can be included with NOIT Written notice that sponsor is seeking determination letter from IRS May be provided electronically 26 13
Participant Communications Notice Timing What s Included Notice of Plan Benefits (NOPB) Before filing standard termination notice with PBGC (no later than 180 days after date of plan Amount and benefit form Data used in calculation Plan provisions termination) Assumptions (e.g., lump sum rates) Explain how participant can correct information Must be written in plain language Notice of Insurer Information 45 days prior to distribution Provide to all participants except those receiving mandatory cashout Identify insurer from whom intend to purchase annuity If not known yet, provide information on possible insurers Frequently provided with Notice of Plan Benefits QJSA Notice and Benefit Election Information Notice of Annuity Contract Within 180 days of distribution date Within 30 days after available but prior to PBGC Form 501 filing Only to lump sum eligible participants Benefit options Spousal consent Beneficiary designations Relative value notice, etc. Provide those participants for whom an annuity was purchased with annuity certificate 27 Government Filings Filing Timing Purpose and Information IRS Form 5310 and Form 6088 Prior to filing the PBGC Form 500 Request a determination letter for the terminating plan Requires participant counts Nondiscrimination tests as needed Update plan document Pay and benefits for top 25 highest paid PBGC Form 500 (Standard Termination Notice) PBGC Form 501 Within 180 days of plan termination date (but after Notice of Plan Benefits is provided) 30 days after asset distribution date (but no penalty if filed with 90 days of last distribution) Notify the PBGC of plan termination PBGC has 60 days to review and approve Plan administrator certifies that participants received the NOPB, accurate information provided to Enrolled Actuary, and whether there is an asset reversion Enrolled Actuary certifies assets and liabilities are sufficient Certifies that distribution of assets completed in accordance with ERISA Provide participant counts and amounts of lump sums and annuities (in total) PBGC Form MP Along with Form 501 List benefits and cost for each missing participant Post-distribution Notice to IRS (Benefit Assurance) IRS Form 5330 As requested from the IRS Last day of the month following an asset reversion Certifies assets and liabilities have been distributed and all benefit liabilities have been satisfied Payment of excise tax on any asset reversion 28 14
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 1. Take formal action to: (a) freeze the plan (a) frozen as of 09/30/2006 (a), (b) and (c) TBD (b) terminate plan (establish Plan Termination Date ( PTD )) (b) Requirement: The action to terminate the plan must be taken on or before the termination date; no action may be taken after the termination date to reduce the value of plan benefits or eliminate or restrict a plan benefit. Target Date= 09/30/2011 (c) adopt any needed plan amendments (e.g., compliance, elimination of non-protected ancillary benefits, adding, if necessary distribution options (d) confirm freeze amendment adoption dates/locate copies The action to freeze the plan should be independent of the action to terminate the plan. (see step 2(b)) This ensures that, if the plan termination is voided, either by the employer or the PBGC, the employer has nevertheless ceased benefit accruals. (c) Requirement: Prior to IRS filing in step 5(b) Target Date= 12/31/2011 (d) Target Date = 12/31/2011 (d) To be provided by Employer or ERISA counsel The employer should consult with counsel on tax deductions and the timing of making additional contributions to the plan before establishing a PTD. Page 6
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 2. Distribute notifications: (a) Notice of Intent to Terminate ( NOIT ), which informs affected parties that plan will terminate (and starts the PBGC plan termination clock ). Affected parties include all: - active participants - deferred vested participants - retired participants - beneficiaries receiving payment and deferred (if any) - alternate payees (if any) - union representatives (if applicable) Review with counsel treatment of non-vested terminated employees (e.g., deemed cashouts) NOIT must provide PBGC-prescribed content including information about state guaranty protections, effects of cessation of benefit accrual, how to request a Summary Plan Description and either, i) Notice of Annuity Information (name and address list of insurance companies) or ii) statement that affected parties will be notified of insurance companies at a later date (but no later than 45 days prior to distribution date). PBGC provides a model NOIT in Form 500 package. (b) Confirm 204(h) notice distribution dates/locate copies 3. Develop and implement investment strategy. Key steps are: - Discuss objectives to develop a risk management strategy - Develop projections with liabilities, including structure and duration - Develop asset strategy - Address illiquid assets - Coordinate communication with investment manager(s) to implement the strategy (a) Requirement: 60 days (but not earlier than 90 days) before PTD Target Date = 10/14/2011 (b) Target Date= 10/14/2011 As soon as plan termination is approved (a) NOIT prepared by TBD, for review by Employer, TBD, and ERISA counsel, distributed by TBD (or outside vendor) (b) To be provided by Employer or ERISA counsel Employer and TBD Page 7
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 4. (a) Begin to compile list of missing participants (those whose NOITs are returned) (b) Perform a plan termination diligent search for missing participants, including use of a commercial locator service c) Conduct death audit on deferred inactive participants and beneficiaries and retirees beneficiaries (a) After step 2 (b) Requirement: Plan termination diligent search should not begin more than six months before NOITs are issued in step 2(a) Target Start Date= 11/01/2011 (c) After step 2 (a) Employer (or outside vendor) (b) and (c) Employer (or outside vendor), with assistance of commercial locator service 5. (a) Distribute Notice to Interested Parties ( NTIP ) to announce that plan will be submitted to the IRS Notice may be provided by any method that reasonably ensures that all interested parties receive timely and adequate notice (post, hand-deliver or mail electronically, if appropriate). Interested parties are substantially the same as affected parties (step 2(a)). (b) Submit Form 5310 (Application for Determination for Terminating Plan ) to IRS, including amended plan document, 5- year history of non-vested terminations, estimates of plan assets and liabilities and Forms: 6088 (Distributable Benefits from Employee Pension Plan), Schedule Q (Elective Determination Requests), with demonstrations (if applicable), 2848 (Power of Attorney and Declaration of Representative), 8717 (User Fee for Employee Plan Determination, Opinion and Advisory Letter Request) (a) Not less than 10 days or more than 24 days before step 5(b); notice is considered received on postmark date, if sent by first class mail Target Date = 02/10/2012 (b) As soon as possible, and if at all possible before step 7 (to qualify for the maximum time to distribute plan assets) Target Filing Date = 03/01/2012 Assumed IRS Approval Date = 10/01/2012 (a) Prepared by TBD, for review by Employer and ERISA counsel, and distributed by TBD (or outside vendor) (b) Prepared by TBD, with assistance from Employer and plan actuary, for review by Employer and ERISA counsel, submitted by TBD Page 8
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 6. (a) Distribute Notice of Plan Benefits ( NOPB ) to active and terminated participants, retirees, beneficiaries and any alternate payees. NOPB describes plan benefit, shows accrued benefit amount and benefit at earliest commencement date, and presents other required information and best available data used in accrued benefit calculations for all active, terminated vested and retired participants (retired within 12 months prior to PTD). Participants must be given this opportunity to review and correct data. (b) Collect and record data corrections submitted by participants and beneficiaries 7. Submit standard termination notice (Form 500) and Schedules EA- S, and REP-S to PBGC (If necessary, Employer must execute commitment to make the plan sufficient before Actuary can sign Schedule EA-S.) (a) Requirement: Must be before step 7 (i.e. within 180 days after termination date but not after step 7) Target Date = 04/16/2012 (b) Target Period = 04/18/2012 to 06/15//2012 Requirement: Within 180 days after termination date but not before step 5 or step 6 Target Date = 05/01/2012 (a) Prepared by TBD, for review by Employer and ERISA counsel, distributed by Employer (or outside vendor) (b) Employer (or outside vendor) Prepared by TBD with assistance from plan actuary, for review by Employer, submitted by TBD (assuming TBD is designated as representative on PBGC form REP-S) 8. PBGC approves termination by failing to respond within 60 days after receipt of Form 500 in step 7 Requirement: 60 days after PBGC s receipt of Form 500 in step 7 Target Date = 07/1/2012 PBGC 9. IRS issues favorable determination letter During its review, IRS may request additional plan documentation or amendment(s) to bring the document into full compliance. Unknown (IRS does not commit to a deadline. Can be within 4-18 months of Form 5310 filing date in step 5(b) Target Period = 09/01/2012 to 09/01/2013 Assumed IRS Approval Date = 10/01/2012 IRS Page 9
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION WAIT FOR IRS APPROVAL TIMING FOR STEPS 10-17 DEPENDS ON RECEIPT OF IRS LETTER 10. If Notice of Annuity Information (statement of insurers) was not provided in NOIT (see step 2(a)), distribute a supplemental Notice of Annuity Information ( SNAI ) to all affected parties entitled to benefits (other than those who will receive mandatory cashouts**). The SNAI discloses the names and addresses of the potential insurance companies from among which annuities will be purchased. Addition of a new insurer to be solicited requires new SNAI and restarts the 45 day notice requirement. **It is recommended that all participants, even those likely to elect a lump-sum ( LS ) distribution /rollover should receive SNOAI at least 45 days prior to distribution. Doing so will ensure that the plan may purchase an annuity in the event the plan is unable to distribute the benefit in cash (e.g., participant/beneficiary will not cash distribution check). Requirement: At least 45 days before step 13(c) The SNAI 45-day deadline is a PBGC requirement. Use care in coordinating with other notification mailings. Often included in participants benefit election packets (step 11(a)), which may require a separate retiree mailing. Assumed IRS Approval Date = 10/01/2012 Target Distribution Date = 12/01/2012 Prepared by TBD, distributed by Employer (or outside vendor) Page 10
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 11. Participant Election Process: (Assumed PTD annuity starting date = 12/01/2012) (Assumed IRS Approval Date = 10/01/2012 (a) Distribute payment election forms and required participant disclosures (b) Collect written payment elections from participants, confirm all forms completed properly (including notarized spousal consents), follow up on incomplete elections and summarize election results (a) Requirement: No earlier than 180 days and no later than 30 days before annuity starting date (recommended that step 11(a) occur after step 8 and step 9 Participants (and spouses) must be permitted to take at least 30 days to decide on form of payment: immediate lump sum, rollover, or annuity (immediate or deferred). Distribution may, if plan permits, be processed after QJSA notice date + 7 days (if participant waives 30-day notice period after proper notification, or if distribution is attributable to a retroactive annuity starting date ). Target dates = 10/12/2012 (election period begins) through 11/16/2012 (election period ends) (b) Target period = 10/16/2012 to 12/01/2012 (a) Election forms prepared by TBD, for review by Employer and ERISA counsel, distributed by Employer (or outside vendor) (b) Employer (or outside vendor) 12. Contribute the amount, if any, to the Plan necessary to pay all plan benefits (and purchase any remaining annuities) Prior to the date Plan distributes assets in step 13(a) or purchases annuities in step 13(c) Employer Page 11
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 13. Final Distribution of Assets: (a) Distribute lump-sum and rollover payments to participants and beneficiaries (b) Purchase annuities for retirees and those participants not electing lump-sum payment in step 11(b) Note: Advance work associated with drafting bid specifications and data requirements begin in 2011, following a separate timetable. (c) Distribute assets to insurance company (transfer premium to selected insurance company) 14. If necessary, request PBGC to extend time to distribute assets for compelling reasons (a) Target date = December, 2012 Requirement: Final distribution of assets must be completed within (i) 180 days after step 8 (PBGC approval) or (ii) 120 days after step 9 (date of favorable IRS determination letter), as long as step 5(b) (IRS filing) was completed prior to step 7 (PBGC filing) (b) Target date = 12/12/2012 (c) Target date = 12/19/2012 Requirement: At least 15 days before deadline for this step (see step 13) (a) Trustee/bank based on instructions from Employer (with assistance from outside vendor, as needed) (b) Employer, with assistance from TBD (c) Trustee/bank, based on instructions from Employer Prepared and submitted by Employer or TBD 15. Provide notice to participants and beneficiaries of the insurance company selected to provide their plan benefit Requirement: Within 30 days of annuity purchase in step 13(c) Target date = 01/05/2013 Prepared by TBD and distributed by Employer (or outside vendor) Page 12
ABC PENSION PLAN Standard Defined Benefit Plan Termination Timetable Illustrative Proposed Termination Date = December 31, 2011 Assumes: A) Plan Distribution Includes a Lump-Sum Option for Deferred Participants B) Annuity Purchase after Lump Sum Distributions C) No Asset Reversion D) Accruals Previously Frozen E) AFTAP Greater than 80% STEP ACTION DEADLINE ORGANIZATION 16. File Post-Distribution Certification (Form 501) with PBGC, including Schedule MP (Missing Participant Information), required if there are ANY missing participants. If unlocatable participants or beneficiaries benefits were not annuitized or distributed, the plan is required to turn over to the PBGC information, certifications, and assets to provide designated benefits to missing participants and beneficiaries, based on PBGC regulations section 4050. Requirement: No later than 30 days after last distribution date for any affected party has occurred. (Distribution of annuities occurs on date benefit obligation passes irrevocably to insurer.) (No penalty assessed by PBGC if Form 501 is filed within 90 days after last distribution date ) Prepared by TBD and submitted by Employer 17. PBGC Audit (all plan terminations involving 300 or more participants and a random selection of smaller plan terminations) PBGC initially requests plan related documents (plan and amendments) and participant listings. Follow-up requests become more detailed and for a select group of participants, PBGC will require individual data supporting accrued benefit and lump-sum distribution calculations. Additional information requested by the PBGC has included copies of 204(h) notices, NOPBs, distribution election materials, and spousal consent forms. PBGC s initial information request is typically received one to six months after Form 501 is filed (step 16). PBGC may take 12 to 24 months (or more) to complete their audit. Employer (with assistance from outside vendor) and TBD, for review by ERISA counsel Final Schedule SB must be filed for the plan year in which the plan termination date occurs; no Schedule SB is required for subsequent years. IRS Form 5500 must continue to be filed for all plan years until all assets have been paid out of the trust. (A plan year ends and a short plan year is created upon complete distribution of all the plan s assets. Final Form 5500 filing is due by the end of the seventh month following the end of the final short plan year.) PBGC premiums must continue to be paid through and including the plan year in which assets are distributed in satisfaction of all benefit liabilities, although the sponsor may prorate final premium (or pay full premium and file for a partial refund) for the short plan year created by the final distribution of plan assets. (Moreover, terminating plans may qualify for an exemption from the variable rate premium if an NOIT was issued providing for a plan termination date that was prior to the premium snapshot date.) Proposed DOL regulations require distribution of AFN unless assets distributed in satisfaction of all liabilities before due date. Page 13