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While terminating a defined benefit (DB) plan will save a company money in the long run, these projects are a lot of work and typically require a significant one-time cash outlay, which makes them difficult to get off the ground without strong internal support. Identifying an executive sponsor and making specific team leads accountable for the project’s success can help pave the way to success.
A typical plan termination project runs 12 to 18 months from the time the decision is made. The date of plan termination is usually set at month three or four, becoming the anchor date around which all other activities are based.
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There are steps
Other administrative processes, like returned mail,
While the administrative prep is underway, asset and liability prep should be happening simultaneously. To reduce the volatility of plan liabilities prior to termination, plan sponsors should work with their actuary to determine a realistic horizon for termination while also building a de-risking strategy.
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De-risking can be achieved in a variety of ways, from downsizing the population via targeted lump-sum windows to pulling out small annuities from the plan through small-annuity purchases to investing in bonds that are matched to the plan’s benefit payments (known as liability-driven investing). Specific actions taken will ultimately depend on the funding level of the plan, demographics of the population and organizational priorities. De-risking recommendations should be informed by forecasting and brought before the retirement committee for approval at the appropriate time.