Terminating an Overfunded Pension Plan? Who Gets the Excess?

If a single employer overfunded pension plan is terminating and its participants and beneficiaries are on track to receive full benefits, the plan sponsor will likely ask if the excess is theirs. In other words, will the surplus revert to the plan sponsor? The answer is maybe.

To determine how excess plan funds can be exhausted, which may include a reversion to the plan sponsor, there are 7 possibilities to consider. As always, the place to start with any retirement plan issue is to answer the question: what does the plan say?

Terminating an Overfunded Pension Plan

Possibilities to Consider if the Terminating Plan Document does not Permit a Reversion

A plan document may state that no part of the plan’s assets can be diverted for any purpose other than for the exclusive benefit of participants and beneficiaries. The plan may also indicate that the plan cannot be amended to designate any part of the assets to become the employer’s property. If an overfunded pension plan has these provisions, it is tempting to assume the only choice is to allocate the excess among participants and beneficiaries. However, even in the face of these explicit provisions, there may be other provisions that permit an employer to recover or use a portion of the excess assets.

Possibilities 1 and 2 – Return of Mistaken and Nondeductible Contributions

Plan documents generally indicate that if an employer makes an excessive plan contribution due to a mistake, the employer can demand the surplus is returned. The employer is required to request this from the trustee within one year after the contribution was made to the trust. In addition, plans generally provide that a contribution is made on the condition that the employer receives a corresponding tax deduction. In the unlikely event that the deduction is not permitted by the IRS, the contribution can be returned to the employer within one year following the IRS’ final determination that the tax deduction was not allowed.

An example of a contribution mistake may be an actuarial calculation error. In a 2014 Private Letter Ruling, the IRS considered a surplus reversion when a terminating single employer plan purchased an annuity contract. The excess assets were created when the purchase price selected to fully fund plan benefits actually came in at a lower price than estimated. Using reasonable actuarial assumptions, the plan’s actuary had advised the employer to contribute a higher amount than was ultimately calculated as necessary by the insurance company. In this case, the IRS permitted the return of the mistaken excess contribution. 

Possibility 3 – Have all Reasonable Plan Expenses Been Paid from the Trust?

Many plan documents provide that plan expenses can be paid from the trust. In some instances, appropriate and reasonable plan termination expenses will go a long way to exhaust excess assets. Reasonable plan termination expenses include determination letter costs and fees, service provider termination charges and termination implementation charges such as those for the plan audit, preparing and filing annual reports, calculating benefits, and preparing benefit statements.

Possibilities to Consider if the Terminating Plan Document Permits a Reversion

The overfunded pension plan may explicitly state that excess assets, once all of the plan’s obligations to participants and beneficiaries have been satisfied, may revert to the plan sponsor. On the other hand, the plan may not explicitly permit a reversion. In that case, the plan sponsor may want to consider amending the plan to allow a reversion well ahead of the anticipated termination.

Possibilities 4 – Take a Reversion

If the first three possibilities do not work or are inadequate to exhaust the surplus, and the overfunded pension plan allows a reversion, there are three more possibilities. In the first, the employer takes all. The employer can take all of the excess funds back subject to a 50% excise tax, as well as applicable federal tax.  Notably, a not-for-profit organization may not be subject to the excise tax on the reversion at all if it has always been tax-exempt.

Possibility 5  – Transfer the Excess to a Qualified Replacement Plan

The opportunity to pay only a 20% excise tax (and any applicable federal tax) on part of the surplus is available where the remaining excess assets are transferred from the terminating pension plan to a newly implemented or preexisting qualified replacement plan (QRP). A QRP can be any type of qualified retirement plan including a profit sharing plan, 401(k) plan, or money purchase plan. For example, an employer’s or a parent company’s 401(k) plan, whether newly implemented or preexisting, may qualify as a qualified replacement plan.

Once an appropriate plan is chosen, the amount transferred into the QRP must be allocated directly into participant accounts within the year of the transfer or deposited into a suspense account and allocated over seven years, beginning with the year of the transfer.

There are additional requirements for a qualified replacement plan. At least 95% of the active participants from the terminated plan who remain as employees must participate in the QRP. In addition, the employer is required to transfer a minimum of 25% of the surplus into a qualified replacement plan prior to the reversion. If all of the QRP requirements are satisfied, then only the amounts reverted to the employer are subject to a 20% excise tax and federal tax, if applicable. 

Possibility 6 – Provide Pro Rata Benefit Increases

If the employer chooses not to use a QRP, it can still limit the excise tax if it takes back 80% or less of the surplus and provides pro rata or proportionate benefit increases in the accrued benefits of all qualified participants. The amendment to provide the benefit increases must take effect on the plan’s termination date and must benefit all qualified participants. A qualified participant is an active participant, a participant or beneficiary in pay status, or a terminated vested participant whose credited service under the plan ended during the period beginning 3 years before termination date and ending with the date of the final distribution of plan assets. In addition, certain other conditions apply including how much of the increases are allowed to go to participants who are not active.

A Possibility That’s Always Available

Possibility 7 – Allocate all of the Excess Among Participants and Beneficiaries

It is always possible to allocate all of the excess assets among participants in a nondiscriminatory way that meets all applicable law. A plan amendment is necessary to provide for these higher benefits.

You may know at the outset of terminating your plan that there will be excess assets. On the other hand, a surplus may come as a surprise. Even if a pension plan is underfunded at the time the termination process officially begins, it is possible that the plan becomes overfunded during the approximate 12 month time period to terminate the plan. In this scenario, the plan sponsor will have to address what to do with the excess assets.

Dealing with the excess assets in a terminating defined benefit plan can be a challenge. There are traps for the unwary, and considerations beyond the scope of this article. Plan sponsors need to determine first how the excess was created, because the answer to that question may determine what happens to it. If there is no obvious answer in how to deal with the surplus, then the plan sponsor needs to look at all of the possibilities. It may be that a combination of uses for the excess plan assets is best. If you think you will find yourself in this situation with your defined benefit plan, consult your trusted advisors at your earliest opportunity so that you know the possibilities available to you.

Questions on your defined benefit pension plan’s possibilities? Need help navigating your options? Please contact Sheila Ninnenam in the form below.

Published July 10, 2019

© 2019 Findley. All Rights Reserved.

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More Pension Lump Sum Cashout De-risking Activity Expected in 2019

Pension plan sponsors looking for significant cash savings and de-risking opportunities have another favorable environment to pull the participants’ lump sum cashout lever this year. But that lever includes several options and considerations. In 2019, the interest rate environment is favorable which gives pension plan sponsors an opportunity to provide lump sum payments to participants while improving the funded status of the plan. So why wait to offer this cashout opportunity when you have this significant benefit staring you right in the face?

Lump Sum Cashout Opportunity in 2019

Lump Sum Cashouts Defined

A Lump Sum Cashout program occurs when a defined benefit pension plan amends its plan to allow terminated vested participants to take a lump sum payment of their benefit and be cashed out of the plan entirely. The program is typically offered as a one-time window but can also be made a permanent feature of the plan with potentially significant financial impact. Plans generally may offer this type of program only if their IRS funded percentage is at least 80% both before and after the program is implemented.

Many pension plans have offered, or at least considered, Lump Sum Cashout programs over the last several years to minimize their financial risk. Plan sponsors that have implemented these programs have been rewarded with significant cash savings as well as risk reduction

Advantages of Implementing Lump Sum Cashout Today

1. Favorable Lump Sum Interest Rate Environment

In 2019, the lump sum interest rate environment is favorable for most employers thanks to a significant interest rate increase during 2018 when lump sum interest rates are locked in for 2019 calendar year plans. These higher rates will result in smaller lump sum payments when compared to 2018 (15-20% decrease).

2. Improved Funded Status

Another advantage of the current interest rate environment is that lump sums will be less than most other liability measurements related to the plan. In other words, interest rates used for 2019 calendar year plans to determine accounting liabilities are lower than lump sum rates. Therefore employers will be paying benefits to participants using a value less than the balance sheet entries being carried for those benefits. These lower lump sum payments will then help employers improve the funded status of the plan in addition to de-risking or reducing the future risk. This interest rate arbitrage is not expected to exist in 2020 since defined benefit lump sum interest rates have continued to decrease since the beginning of 2019.

3. PBGC Premium Savings

The most significant benefit of offering a Lump Sum Cashout Program is the Pension Benefit Guaranty Corporation (PBGC) premium savings. The PBGC continues to increase the annual premiums that pension plans are required to pay to protect the benefits of their participants in the pension plan. The per participant portion of the premium (flat rate) is now up to an $80 payment per participant in 2019. This is more than a 200% increase since 2012. The variable rate portion of the premium is up to $43 per $1,000 underfunded which is an increase of almost 500% since 2012.

Flat Rate (per participant) + Variable Rate = PBGC Premium

These rates are expected to continue to grow with inflation each year. Therefore it is ideal for pension plan sponsors to reduce their participant count sooner rather than later so they can save on these future premiums. In total, some defined benefit plan sponsors could see annual PBGC premium savings of over $600 for each participant who takes a lump sum distribution.

Can You Offer a Lump Sum Cashout More than Once?

Employers that have previously offered a lump sum cashout to participants should be aware that this doesn’t exclude them from pursuing a de-risking program again. In general, as long as plan sponsors wait 3-4 years between similar programs, they can offer the same program to plan participants again. This gives participants who have terminated since the original program an opportunity to take their pension payment. A second round offering also gives participants from the first program a second chance to take a cashout while de-risking the plan for the plan sponsor.

Other Considerations When Planning for a Lump Sum Cashout

There are some concerns that plan sponsors will also want to consider such as:

  • Potential increases to contribution requirements;
  • One-time accounting charges that could be triggered;
  • Potential increase to annuity purchase pricing upon plan termination. Note that a permanent lump sum feature may increase pension plan termination annuity pricing and cause some insurers to decline to bid.

In summary, 2019 is an ideal year given the lump sum interest rates. The current interest rate arbitrage provides pension plan sponsors a low cost opportunity to de-risk the pension plan and save significantly on future PBGC premiums. As with any de-risking opportunity, there are several considerations that should also be discussed. The defined benefit plan’s actuary should be consulted so they can properly evaluate the impact of offering such a program.

Some plan sponsors use lump sum cashouts as part of their pension plan termination preparation strategy. This Findley white paper provides tips to map your route to pension plan termination readiness.

Questions? Contact the Findley consultant you normally work with, or contact Amy Gentile at amy.gentile@findley.com, 216.875.1933.

Published on June 7, 2019

© 2019 Findley. All Rights Reserved.

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Market Volatility Shows Importance of Pension Plan Termination Planning

Equity markets have rallied in early 2019 and the losses from December 2018 have all but been erased. Interest rates haven’t recovered to the November, 2018 high, but the funded status for most pension plans has rebounded. Findley’s April 2019 Pension Indicator shows how the funded status of pension plans has improved since year-end 2018.

Pension Indicator April 2019 rolling 12 months. Funded percentage changes, liability index, and investment mix.
April 2019 Findley Pension Indicator

With all of this volatility, plan sponsors that started planning for a plan termination in early 2018, and monitored the improving funded status of the plan, may have taken some steps to help mitigate the impact of a market downturn. In this case, a plan sponsor which hedged the assets to better match the liabilities prior to December experienced only about a 2% reduction in the plan’s funded status during December. In addition, even though a hedged plan following an LDI investment approach hasn’t seen a great improvement in funded status from the market rebound, it still has a better funded percentage than plans with other investment strategies.

The lesson is most plan sponsors probably don’t really know how close (or far) the plan is or was to being financially ready for a plan termination. And, as the adage goes, “failure to plan is a plan to fail.”

Planning is Fundamental to Success

To help plan sponsors understand this volatility and how to manage it, Findley has developed a process to help plan sponsors prepare for a plan termination. (See Findley’s article “Mapping Your Route to Pension Plan Termination Readiness”). The plan termination process itself requires many steps, but there are also steps that a plan sponsor can take prior to beginning a plan termination to be better prepared. Whether plan termination is 1, 5, or 10 years away, planning is critical.

Findley's Interactive Pension Plan Term Modeler. Defined Benefit plan assets, contributions, and short fall graph.

Findley’s Interactive PlanTermTM Financial Modeler

Taking a closer look at plan’s financial readiness, there are a few topics plan sponsors should explore:

  • the plan’s investment strategy,
  • the benefits of de-risking strategies, and
  • a formalized contribution policy.

Reviewing these financial topics early and monitoring them periodically can help plan sponsors achieve plan termination financial goals in a more orderly and predictable way.

Knowing the time horizon, identifying data issues, and reviewing the plan document are other areas to include in your readiness planning. Findley’s Rapid MapTM process helps plan sponsors take a project management approach to all of these aspects of getting ready for a plan termination.

In Perspective

If you are contemplating plan termination, consider taking advantage of this early 2019 rebound. Planning early for a plan termination can have a positive long-term effect on the point in time when your plan is ultimately ready to terminate. Take steps now to put a process in place to regularly monitor your plan’s funded status. Spending time now can reap rewards and potentially mitigate the negative outcomes from future market downturns.

Questions? Contact the Findley consultant you normally work with, or Larry Scherer at Larry.Scherer@findley.com, or 216.875.1920.

Published on May 13, 2019

© 2019 Findley. All Rights Reserved.

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2019 Pension Plan Compliance Calendar

Calendar Plan Year & Calendar Employer Tax Year*

January 2019  
15 Due date to make fourth required quarterly contribution for 2018 plan year
31 Last day to file Form 945 to report withheld federal income tax from distributions
31 Last day to furnish Form 1099-R to recipients of distributions during 2018 calendar year

February 2019
28 Last day to file Form 1096 and Form 1099-R on paper with the IRS

March 2019
31 Deadline for enrolled actuary to issue AFTAP certification for current year to avoid presumption for benefit restrictions (if applicable)

April 2019
01 Presumed AFTAP takes effect unless and until enrolled actuary issues certification of AFTAP for current plan year (if applicable).
01 Last day to pay initial required minimum distributions to applicable plan participants
01 Last day to file Form 1099-R electronically with the IRS
15 Due date to make first required quarterly contribution for 2019 plan year
15 Last day to file financial and actuarial information under ERISA section 4010 with PBGC (if applicable)
15 Last day for C corporation employer plan sponsors to make contributions and take tax deduction for 2018 without corporate tax return extension
30 Last day to furnish Annual Funding Notice (for plans covered by PBGC that have more than 100 participants)

May 2019
01 Last day to provide notice of benefit restrictions, if restrictions are applicable as of April 1, 2019

July 2019
15 Due date to make second required quarterly contribution for 2019 plan year
29 Last day to furnish Summary of Material Modifications (SMM) to participants and beneficiaries receiving benefits
31 Last day to file Form 5500 for 2018 without extension.
31 Last day to file Form 8955-SSA without extension
31 Last day to provide a notice to terminated vested participants describing deferred vested retirement benefits (in conjunction with Form 8955-SSA)
31 (or the day Form 5500 is filed, if earlier) – Last day to furnish Annual Funding Notice (for PBGC covered plans with 100 or fewer participants without extension)
31 Last day (unextended deadline) to file Form 5330 and pay excise tax on nondeductible contributions and prohibited transactions (if applicable)

September 2019
15 Last day to pay balance of remaining required contributions for 2018 plan year to satisfy minimum funding requirements.
30 Last day to furnish Summary Annual Report to participants and beneficiaries (for non-PBGC covered plans)
30 Last day for enrolled actuary to issue AFTAP certification for current plan year

October 2019
01 If enrolled actuary does not issue AFTAP certification for plan year, then AFTAP for plan year presumed to be less than 60 percent and plan will be subject to applicable benefit restrictions.
15 Last day to file Form 5500 (with extension)
15 Last date to file Form 8955-SSA (with extension)
15 Last day to provide a notice to terminated vested participants describing deferred vested retirement benefits (in conjunction with Form 8955-SSA)
15 Due date to make third required quarterly contribution for 2019 plan year
15 Last day to file PBGC comprehensive PBGC premium filing and pay premiums due (for plans covered by PBGC)
31 Last day to provide notice of benefit restrictions, if restrictions are applicable as of October 1, 2019

December 2019
15 Last day (with extension) to furnish Summary Annual Report (for non-PBGC covered plans)
31 Last day for enrolled actuary to issue a certification of the specific AFTAP for current year if a range certification was previously issued
31 Last day for plan sponsors to adopt discretionary plan amendments that would be effective for the current plan year

*This calendar is designed to provide a general overview of certain key compliance dates and is not meant to indicate all possible compliance dates that may affect your plan.

© 2019 Findley • All rights reserved

If you would like more specific information about each compliance item, you may review or print the calendar below.

Print 2019 Detailed Pension Plan Compliance Calendar

Interested in other compliance calendars?

Defined Contribution

Health & Welfare

IRS Announcement May Allow Lump Sum Window for Retirees


Pension plan sponsors may have a new tool available to use in de-risking their pension plans – paying lump sums to retirees currently in payment status. As with some other de-risking initiatives, a retiree lump sum window could accomplish the reduction in PBGC headcount premiums as well as reduce the size of the plan liability and therefore reduce the risk to the organization.

Through the release of IRS Notice 2019-18 on March 6, 2019, the IRS officially announced that there will be no amendments to the minimum distribution regulations under IRC 401(a)(9) to address the retiree lump sum window concerns raised under Notice 2015-49. In addition, the IRS says that until further guidance is issued, they will not claim that a plan amendment providing for a retiree lump sum window program causes the plan to violate minimum distribution regulations. However, they will continue to evaluate whether such an amendment would cause concerns in regards to other sections of the IRS Code, namely those sections dealing with non-discrimination, vesting, benefit limits, optional forms of payment, and benefit restriction rules.

While IRS Notice 2019-18 does not make the legality of retiree lump sum windows perfectly clear, and the IRS has stated that it will “continue to study the issue of retiree lump sum windows,” plan sponsors interested in possibly utilizing this de-risking technique should discuss the approach with their ERISA counsel and actuary to get a better understanding not only of the legalities, but the advantages and disadvantages associated with the approach. Some of these are listed below.

Advantages and Disadvantages of a
Retiree Lump Sum Window


  • PBGC Premium reduction
    • Plan sponsors will save money annually for each retiree that takes a lump sum.
    • Premiums are based on participant counts and depending on the funded status of the plan, plan sponsors could save between $80 and $600 per person each year.
  • May provide positive balance sheet impact
    • In the current interest rate environment, there are many plans where lump sums may be less expensive than current accounting liabilities.
    • End of year funded status may improve as a result of paying out lump sums.
  • PBGC funded status may improve in the current interest rate environment
    • Variable Rate premiums could be reduced.
    • 4010 filing requirements may no longer be required.
  • One step towards full plan termination
    • Lump sums to retirees would reduce the size of the plan and take the plan sponsor one step closer to full plan termination.
  • Reduced administrative expenses
    • Fewer 1099s will need to be distributed.
    • Payment processing fees will decrease.
  • Reduction in headcount may lead to exemption from certain compliance requirements:
    • Control groups below 500 participants are exempt from at-risk provisions of the Internal Revenue Code.
    • PBGC 4010 filing requirements are eliminated if the headcount of the control group falls below 500.
    • A plan audit is no longer required if plan size reduces to less than 100 participants.


  • Additional pension expense and funding requirements
    • The lump sum window could trigger a one-time additional pension expense in the year lump sums are paid. The amount of expense will depend on the amount of lump sums paid as well as the balance sheet position at the end of the fiscal year.
    • A retiree lump sum window may lower AFTAP funding percentage and lead to increased minimum funding requirements.
  • Increase in volatility
    • Retirees are the most stable group of participants in terms of liability.
    • Removing all or a portion of retirees will make the plan’s liability more unstable and can make it harder for plan sponsors to plan or budget.
  • Plan termination will be more costly
    • Retirees have the least per person cost in an annuity purchase.
    • Annuity providers will charge a higher premium when being offered a plan with a relatively small group of retirees.
    • Many annuity providers will also choose not to bid on plans that have previously offered retirees lump sums.
  • Adverse selection
    • Retirees who opt to take the lump sum are more likely to be in poor health, and more likely to die before their actuarial life expectancy. By taking a lump sum today, they are being paid for future benefits that they might not otherwise survive to receive and therefore the plan could be overpaying this liability.
    • Retirees left in the plan are typically healthier and have a longer payment stream, making the remaining group a more expensive population to fund and later insure.

Another Option

Plan sponsors do not have to offer lump sums to their entire retiree population. This approach allows the plan sponsor to benefit from the advantages described above but also avoids the potential disadvantages. The retiree group can be carefully selected to maximize the results of the window.

Final Thought

Clearly there is a lot to consider and each plan and plan sponsor is different. Therefore it is highly recommended that plan sponsors review their plan with their actuary and ERISA counsel to determine if offering lump sums to retirees is an ideal strategy.

Questions? Contact Wesley Wickenheiser at 502-253-4625, wesley.wickenheiser@findley.com or Amy Gentile at 216-875-1933, amy.gentile@findley.com, or the Findley consultant whom you normally work with.

Posted March 8, 2019

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Mapping Your Route to Pension Plan Termination Readiness

Trying to nail down the financial aspect of being ready to terminate a pension plan is like trying to hit a moving target. And, unfortunately, it is not the only consideration to determine if your pension plan is ready to terminate. A qualified plan termination is a multi-step, government-regulated process. It involves multiple parties, requires accurate participant data and benefit information, and includes managing the resources and messaging for several required communications with plan participants. It also requires leadership involvement and effective change management to determine a successful implementation strategy. Assessing the status of all these aspects will lead to the successful execution of a termination strategy that is predictable and efficient.

Terminating a plan is not something most organizations do more than once. So it is unlikely that you have a prior project plan saved on your company network. Typical project management approaches will require months to coordinate all the people involved and all the decisions that need to be made.

Using Findley’s approach, as an alternative to typical project planning, can dramatically accelerate the process.

Determine Your Destination:

Gather Background Data and Assess Current Status

The first phase of your process should focus on developing some financial projection analyses and assessing the current status of the plan. This will give stakeholders a baseline understanding of your time horizon, the biggest areas you will need to focus on to get ready, and the capacity of your team to take on tasks related to the termination.

A fully funded plan, measured on a termination basis, is a moving target with several factors that influence the funded level over time (asset returns, cash contributions, interest rates, etc.). Actuarial analytics, projections, and interactive scenarios, that can be modeled with a tool like Findley’s PlanTermTM Financial Modeler, show how possible future economic conditions could affect your plan and will provide critical data for stakeholders to understand which variables have the most impact, and how they all interact.

Outside of the financial aspect, a review of the plan document provisions and compliance and an assessment of historical data will uncover any additional work needed.

Plan Your Itinerary:

Define Your Objectives by Leveraging a Collaborative Session

Defining your multi-year strategy requires key leadership engagement and effective change management. C-suite leaders understand the importance of this preparation but are often challenged to find the time required for the typical strategic planning approach. To overcome this, a compressed planning session, like Findley’s Rapid MapTM session, can be used to form the basis of the strategic plan and build consensus around the priorities and action items.

A trained facilitator addresses important issues connected to the plan termination process in a systematic and focused manner. The Rapid MapTM approach is a proven technique used to:

  • Reach decisions on strategic objectives in a compressed timeframe. In the course of one afternoon, the process can be used to develop and prioritize objectives related to the plan’s readiness to terminate.
  • Build consensus among the many stakeholders. Internally, this group of stakeholders is likely to include key members of your executive, finance, and HR teams. Externally, it also may involve your investment advisors, annuity consultants, actuaries, third party benefit administrators, and ERISA legal counsel.
  • Outline key communications priorities. There are many required communications that must be sent over the course of the plan termination. It is important to discuss a communication strategy that includes the timing, target audiences, key messages to be delivered, who will deliver those messages, and the communication channels you will use.

The trained facilitator will lead a prioritizing activity to define and map out the top goals and objectives that become part of your strategic plan. Action steps are then refined in the last phase.

Start Your Trip:

Create, Implement, and Monitor Your Multi-Year Strategic Plan

In this final phase, project leaders manage the multi-year milestones and implement the change management strategy developed in the planning session. Once the strategic plan is set, a detailed change management project plan defines each year’s implementation steps and timing. Monitoring actual vs. forecast experience begins immediately and continues throughout the course of the multi-year strategic plan. The interactive forecast modeling tool established in the first phase becomes a key tool for ongoing monitoring of financial readiness to terminate, and will also indicate if economic conditions are causing time horizon changes.

While waiting for the plan to be financially ready to terminate, use the time to tackle other objectives identified during the planning session. This might include research into historical data sources, finalization of any benefits that are not already certified, and locating lost participants. You may also need to engage an annuity consultant or identify a partner to outsource some or all of the administrative functions to handle the expected increase in volume.

Plan termination communications can also be tackled during this time. Effective communications will make sure participants are well-informed about their decisions while helping to anticipate and alleviate concerns. Be sure to leverage the opportunity to tailor the messaging and layout of the required notices to be consistent with your company or benefit program branding.

In Perspective

Once the plan termination has begun, the steps in the process are defined by several governmental agencies, and each step has specific timing requirements that make all of the steps interrelated. So, once you start, you need to be ready to progress through the steps at a regular pace.

To make the plan termination process run predictably, smoothly, and most efficiently, the best approach is to assess your readiness well ahead of time and have a strategic plan and process in place.

Questions? For additional information about developing or enhancing your strategic plan, contact the Findley consultant you normally work with, or Colleen Lowmiller at Colleen.Lowmiller@findley.com, 216.875.1913.

Posted January 15, 2019

Reminders of What’s New for Plan Sponsors in 2019

Retirement and health and welfare plan sponsors have a relatively short list of employee benefit changes that begin on or around January 1, 2019. However, some changes were announced so long ago that they could be easily forgotten; here’s a refresher.

For Sponsors of Disability Welfare Plans and Retirement Plans that Provide Disability Benefits


New claims procedures regulations for disability benefits claims, after multiple delays, have finally been set. The Department of Labor (DOL) requires that the new procedures apply to disability claims that arise after April 1, 2018. The rules generally give disability benefit claimants the same level of procedural protections that group health benefit claimants have after the enactment of the Affordable Care Act (ACA). Its aim is to protect disability claimants from conflicts of interest; ensure claimants have an opportunity to respond to evidence and reasoning behind adverse determinations; and increase transparency in claims processing.

What Do Plan Sponsors Need to Do

For most plan sponsors, ERISA claims procedures are described in their summary plan descriptions. That means that the new disability benefit claims procedures require a summary of material modifications. Certain other plan sponsors will want to consider amending their plans to provide that the disability determination under their plan is made by a third party, such as the Social Security Administration or their long-term disability benefits insurer. Plan sponsors are advised to adopt any necessary amendments on or before the last day of the plan year that includes April 2, 2018. For calendar year plans, the amendment deadline is December 31, 2018.

For Sponsors of Retirement Plans

Hardship Withdrawals


Both the December 2017 Tax Cuts and Jobs Act (TCJA) and the February 2018 Bipartisan Budget Act (BBA) made important changes to hardship withdrawals, which can be provided in 401(k), 403(b), and 457(b) retirement plans. The TCJA change made hardship withdrawals more difficult to get for casualty losses, because the damage or loss must be attributable to a federally declared disaster. For more information see our article here. BBA changes generally make hardship withdrawals much more attractive and easier to administer by eliminating certain hurdles for plan participants.

What Changed for Plan Participants

Plan participants no longer need to take the maximum available loan under the plan before requesting a hardship withdrawal for plan years beginning in 2018 (January 1, 2018 for calendar years). Effective on the first day of the applicable plan year beginning in 2019 (January 1, 2019 for calendar year plans), BBA eliminated the rule requiring that employees who take a hardship distribution must cease making salary deferrals for six months. In addition, BBA created a new source of funds for hardship withdrawals— any interest earned on salary deferrals. These hardship withdrawal changes are described here.

What Do Plan Sponsors Need to Do

The TCJA change to hardship withdrawals is an administrative one that impacts internal procedures.  However, BBA changes to hardship withdrawals are likely to require a plan amendment to be adopted on or before the end of the 2019 plan year (December 31, 2019 for calendar year plans), and a summary of material modifications to be issued soon thereafter.

402(f) Special Tax Notices


On September 18, 2018, the Internal Revenue Service (IRS) issued updated model notices to satisfy the requirements of Internal Revenue Code (Code) Section 402(f). The modifications are the result of the TCJA, which extended the time within which a participant can roll over the amount of a plan loan offset to effect a tax-free rollover of the loan offset amount. The new extended period applies to accrued loan amounts that are offset from a participant’s account balance at either plan termination or the termination of employment. A detailed description of these changes and links to the new model notices can be found here.

Defined Benefit Plan Restatements

In March 2018, the IRS released Announcement 2018-15, stating that it intends to issue opinion and advisory letters for preapproved master and prototype (M&P) and volume submitter (VS) defined benefit plans that were restated for plan qualification requirements listed in the 2012 Cumulative List. An employer that wants to use a preapproved document to restate its defined benefit plan will be required to adopt the plan document on or before April 30, 2020.

403(b) Plan Restatements

The deadline to restate preapproved 403(b) M&P and VS plans is March 31, 2020, according to Revenue Procedure 2017-18. 403(b) plans can be sponsored by a tax-exempt 501(c)(3) organization (including a cooperative hospital service organization defined under Code Section 501(c)), a church or church-related organization, and a government entity (but only for its public school employees). For more detailed information, see our article here.

VCP Applications

On September 28, 2018, the IRS issued Revenue Procedure 2018-52, which provides that beginning April 1, 2019, the IRS will accept only electronic submissions to its Voluntary Compliance Program (VCP) under the Employee Plans Compliance Resolution System (EPCRS). The new procedure modifies and supersedes Revenue Procedure 2016-51, which most recently set forth the EPCRS, a comprehensive system for correcting documentary and operational defects in qualified retirement plans. Revenue Procedure 2018-52 provides a 3-month transition period beginning January 1, 2019, during which the IRS will accept either paper or electronic VCP submissions.

2019 Plan Limits

In Notice 2018-83, the IRS issued the cost-of-living adjusted limits for tax-qualified plans. A number of these limits were increased from 2018 levels. For a detailed listing of these limits, see our article here.

For Sponsors of Health Plans

The IRS issued Revenue Procedure 2018-34 in May 2018, which sets the 2019 affordability threshold for the ACA employer mandate at 9.86 percent. Coverage is affordable only if the employee’s contribution or share of the premium for the lowest cost, self-only coverage for which he or she is eligible does not exceed a certain percentage of the employee’s household income (starting at 9.5 percent in 2014, and adjusted for inflation). See our detailed article here.

For Sponsors of High Deductible Health Plans (HDHPs)

In May 2018, the IRS announced in Revenue Procedure 2018-30 the 2019 limits for contributions to Health Savings Accounts (HSAs) and definitional limits for HDHPs. These inflation adjustments are provided for under applicable law. For a more detailed description of the increases, see our article here.

What Do Plan Sponsors Need to Do

Plan sponsors should review their employee benefit plans to determine if any of them are affected by the changes listed above.


Please contact the Findley consultant you regularly work with or Sheila Ninneman at Sheila.Ninneman@findley.com or 216.875.1927.

Posted November 12, 2018

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Using Actuarial Experience in Managing a Public Pension Plan

For government pension plan sponsors, regular analysis of the plan’s experience is a vital tool in the ongoing financial management of the plan. The experience analysis not only provides monitoring of recent trends, it is the basis for determining the forward-looking assumptions used in the actuarial valuations that measure the plan’s liabilities, funded status, accounting expense, and recommended contributions.

Regular experience analysis identifies emerging trends among the plan’s participants, the plan’s investment performance, and the current economic environment. We’ve seen the following general trends in recent years:

  • During the Great Recession (2008-2010), plan participants’ retirement patterns shifted to later retirement, particularly when there were changes in benefits or coverage under a post-retirement health benefits plan. Participant retirements are returning to historical patterns as the economy improves.
  • Participants are living longer in retirement, but not as much as originally expected. Government workers in public safety positions have not seen the increases in life span that employees in other government roles have experienced (e.g., teachers or general employees). A participant’s income level prior to retirement appears to be a better predictor of life expectancy than job role.
  • Low inflation has changed expectations for future investment performance; many investment advisors believe that the current environment is the ‘new normal’ for long-term inflation.

Monitoring changes in demographic, investment and economic trends is important, because the actuarial model should use the best estimates of future experience (the actuarial assumptions) to ensure integrity in the plan’s financial measurements. All stakeholders of a government entity rely on these measurements, but perhaps the most important is the individual taxpayer. The allocation of plan costs should be fair to current and future generations of taxpayers—which means that the actuarial assumptions used in determining the financial measurements should be the best estimates of expected future events.

The Government Finance Officers Association (GFOA), the Government Accounting Standards Board (GASB), and the actuarial profession have each issued standards regarding appropriate actuarial assumptions.   The GFOA has also published its recommendations on practices to enhance the reliability of the actuarial valuation; among these are regularly analyzing actuarial gains and losses and periodically performing actuarial experience studies.

How Should Plan Sponsors Monitor Actuarial Experience?

The GFOA recommends analyzing actuarial gains and losses with every valuation cycle, typically annually. The details of the experience analysis should reflect the plan’s specific circumstances, with economic and demographic factors analyzed separately, and the experience of more significant assumptions highlighted.

Experience monitoring over shorter periods provides real-time information on emerging trends; continuing the analysis over multiple years adds more value by identifying longer-term trends in pension plan experience. The value of a long-term approach can be seen in the research article ”How Did State/Local Plans Become Underfunded” by the Center for Retirement Research at Boston College. This article details the actuarial experience in the Georgia Teachers’ Retirement System (TRS) over a 12-year period and illustrates how actuarial experience ultimately affected the Georgia TRS.[i]

When Should a Formal Experience Study Be Performed?

Ongoing experience analysis may suggest the need for a more in-depth, formal experience study. The experience study can then be the basis for decisions to modify the plan’s actuarial assumptions. An experience study looks at all of the demographic, investment and economic factors that make up the total experience for the plan. Also, the experience study reviews experience over a longer period (typically three to five years).

Some plan sponsors perform an actuarial experience study regularly while others perform studies as circumstances arise, such as after significant plan events, changes within the government entity, or changes in the economy.

Using the Experience Study in Setting Assumptions

The plan sponsor, guided by their actuary, uses an experience study as a key reference point in making assumptions regarding future experience. Each assumption chosen should reflect a combining of recent experience, experience over a longer period of time, as well as expectations for the future. The actuarial experience study can be used to blend the plan’s experience with national experience tables from the Society of Actuaries, or indicate which national experience tables are most appropriate.

In Perspective

Successful financial management of a public pension plan is a recurring process of financial forecasting based on the best available information. Ongoing experience analysis and experience studies gives the plan sponsor and actuary the needed information to best ensure the integrity of plan financial measurements. The bottom line: this process results in less volatile contributions in the short-term, and provides greater generational equity among taxpayers for the long-term.

Questions to Ask Your Actuary


Questions? For additional information about experience analysis and experience studies, contact the Findley consultant you normally work with, or Brad Fisher at Brad.Fisher@findley.com, 615.665.5316.

[i] Alicia H. Munnell, Jean-Pierre Aubry, and Mark Cafarelli, “How Did State/Local Plans Become Underfunded?” State and Local Pension Plans 42 (Center for Retirement Research at Boston College, January 2015). http://crr.bc.edu/wp-content/uploads/2015/01/slp_42.pdf, accessed June 20, 2018.

Posted October 23, 2018

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Pension Accounting Changes Reduce Volatility and Increase Flexibility

Reorganization of how portions of net periodic cost are recognized in a pension plan sponsor’s income statement is effective for privately held entities beginning after December 15, 2018. Now that the items most sensitive to the interest rate environment are no longer recorded against operating income, the volatile impact of pension and retiree medical plan costs on day-to-day operations is reduced, except in times of extreme interest rate volatility.

These changes were released in March 2017 by the Financial Accounting Standards Board (FASB) in its Accounting Standards Update (ASU) 2017-07. These changes were effective a year earlier for publicly traded entities. This brings US GAAP accounting a little closer to international accounting standards.

Only the service cost component (the increase in the projected benefit obligation due to employees’ service during the current year) is still reported in operating income with compensation-related costs. The other components will be reported in other income (expense), outside of any subtotal of income from operations.


This separation of some pension costs from operating costs may open the door to considering new strategies. Here are some examples:

  • The administrative expenses move out of operating cost if the load is applied against expected asset return rather than added to service cost.
  • A granular approach to determine discount rate can be considered, which could reduce service cost (and operating expense as well). The offsetting increases in loss amortization are not a concern since they no longer would affect operating income.
  • For plans reporting expected return on assets, plan sponsors can evaluate asset allocations without concern for the impact on operating income.
  • Risk transfer, plan freeze, and retirement windows could be more attractive since the one-time charges no longer will flow through the income statement.
  • The ASU presented little difference in year-end disclosures as most of the changes are currently included in the presentation of items in those disclosures.

Early adoption is permitted, and many sponsors have adopted these changes already. If you need assistance with the new standards, contact the Findley consultant you normally work with or contact Paul Gibbons at Paul.Gibbons@findley.com or 216.875.1921.

Posted October 12, 2018

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Minimal FASB Changes to Defined Benefit Plan Disclosure Requirements

On August 28, the Financial Accounting Standards Board (FASB) issued changes in the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans.

The changes are aimed to improve the effectiveness of financial statement disclosures by eliminating the requirement for certain disclosures that FASB no longer considers cost beneficial, and requiring new disclosures for ones that FASB considers relevant. FASB does not anticipate significant cost increases because of the changes since the information shown in the newly required disclosure should be readily available.

The changes to Accounting Standards Codification (ASC) 715-20 are as follows:

The following disclosure requirements are removed:

  • The amounts in accumulated other comprehensive income expected to be recognized into net periodic cost for the following fiscal year.
  • The amounts and timing, if any, of assets expected to be returned to the employer.
  • Material related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law.
  • Material about the future annual benefits covered by insurance or annuity contracts and significant transactions between the employer or related parties and the plan.
  • For non-public entities, the reconciliation of the Level 3 plan asset hierarchy. There is still a requirement for separate disclosures for non-public entities related to purchases of or amounts transferred into or out of Level 3 assets.
  • For public entities, the disclosure of a one-percentage-point increase/decrease in the assumed healthcare trend rates on the (a) aggregate of the service and interest costs components of the net periodic benefits costs, and (b) benefit obligation for postretirement healthcare benefits.

The following disclosure requirements are added:

  • For cash balance and other plans with a promised interest crediting rate, the weighted average of the interest crediting rates.
  • Explanation of the reasons for significant gains and losses concerning the benefit obligation.

Clarification of disclosure items for entities that have multiple plans, and present aggregate disclosures:

  • The Accumulated Benefit Obligation (ABO) and fair value of assets shall be disclosed for pension plans with assets less than the ABO.
  • The Projected Benefit Obligation (PBO) and fair value of assets shall be disclosed for pension plans with assets less than the PBO.
  • The Accumulated Postretirement Benefit Obligation (APBO) and fair value of assets shall be disclosed for postretirement plans with assets less than the APBO.

These changes are effective for public entities for fiscal years ending after December 15, 2020; December 15, 2021 for all other entities. Early adoption is permitted.

To learn more about next steps for your plan, contact David Davala, 216.875.1923 or David.Davala@findley.com or the Findley consultant you normally work with.

Posted September 7, 2018

By: David Davala, EA, MAAA, MSPA

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Source: FASB Accounting Standards Update. No. 2018-14. Disclosure Framework—Changes to the Disclosure Requirement for Defined Benefit Plans. © 2018. Accessed September 7, 2018. https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176171130239&acceptedDisclaimer=true