Single Employer Plan Terminations

1. Single Employer Plan Terminations Alan R. Ross Stoel Rives, LLP ASPPA Annual Conference – November 3, 2009

2. Reasons for voluntary plan terminations Alternatives to plan termination The plan termination process DB plans DC plans Roadmap

3. Multiemployer plan terminations Distress terminations Orphan plans What we will not cover

4. Business hardship/bankruptcy Winding up business Transactions Change in philosophy Demographic changes in workforce Reduction in administrative costs/complexity Receive reversion Reasons for voluntary plan terminations

5. Asset transaction Buyer accepts plan Plan remains with seller Stock transaction Buyer accepts ongoing plan Eve of close termination Options in transactions

6. Problems suspected or identified with plan of company to be acquired Buyer secures indemnification from seller Protects buyer and its plan(s) Termination is deemed to have occurred when seller terminates plan, even if distributions occur after transaction closes Buyer still responsible for winding up plan Eve of close terminations

7. Freeze contributions and participation – maintain frozen plan Advantages... Disadvantages... Merge plan into another plan Advantages... Disadvantages... Alternatives to plan terminations

8. Adopt resolutions freezing and terminating plan as of termination date Select termination date Important to expressly both freeze and terminate Plan must be amended to comply with law as of termination date All participants must be fully vested as of termination date DB plan termination process

9. Distribute Notice of Intent to Terminate At least 60 days, and not more than 90 days prior to proposed termination date To participants, beneficiaries of deceased participants, alternate payees under QDROs, and unions PBGC provides model notice DB plan termination process (cont.)

10. Distribute 204(h) notice Relatively simple notice for terminations Generally 45 days before termination date (15 days for small plans or transaction-related terminations) To affected participants and alternate payees DB plan termination process (cont.)

11. Notice of Plan Benefits To participants, beneficiaries of deceased participants, and alternate payees under QDROs No later than date Standard Termination Notice is filed Three categories of recipients with different requirements In pay status Valid elections on file or eligible for lump sum All others DB plan termination process (cont.)

12. Distribute Notice to Interested Parties To present employees with accrued benefits, former employees with vested benefits, and beneficiaries of deceased participants currently receiving benefits 10 to 24 days prior to date Form 5310 is filed Format in Rev. Proc. 2009-6 DB plan termination process (cont.)

13. File IRS Form 5310 For favorable determination Voluntary but advisable No later than date PBGC Form 500 is filed, in order to preserve right to defer distribution to 120 days after favorable determination DB plan termination process (cont.)

14. Ensure plan assets are sufficient Fully fund, or Employer executes irrevocable commitment to make plan sufficient for plan benefits (PBGC provides model), or Majority owners may agree to forgo receipt of all or part of their benefits until benefits for all other participants are satisfied DB plan termination process (cont.)

15. File Standard Termination Notice PBGC Form 500 and Form EA-S PBGC must notify within 60 days if not approved 60-day period may be extended if PBGC notifies plan administrator that additional information is required DB plan termination process (cont.)

16. Provide Notice of Annuity Information To each affected party entitled to plan benefits except those that will receive a lump sum Name and address of each insurer Statement concerning state guaranty association coverage May be provided in Notice of Intent to Terminate If not, must be provided 45 days prior to distribution DB plan termination process (cont.)

17. Provide payment election forms At least 30 and not more than 180 days prior to distribution Allow rollover of eligible rollover distributions Require spouse consent for non-QJSA distribution DB plan termination process (cont.)

18. Distribute plan assets by later of 180 days after expiration of PBGC’s 60-day review period 120 days after favorable IRS determination Either actually distribute benefit (lump sums) or purchase annuities DB plan termination process (cont.)

19. Provide annuity contracts Either plan administrator or insurer must provide annuity contract or certificate Must be provided within 30 days after it is available If not provided by Form 501 due date, plan administrator must provide notice including name, address and telephone number designated by insurance company to address questions DB plan termination process (cont.)

20. File post-distribution certification (PBGC Form 501) Deadline 30 days after last distribution date No penalty if filed not more than 90 days after distribution deadline Advantages to filing as early as possible DB plan termination process (cont.)

21. Missing participants Must conduct diligent search If not found, must purchase annuity or forward benefit to PBGC File Schedule MP with Form 501 DB plan termination process (cont.)

22. Resolutions terminating plan Amend plan for changes in the law Fully vest all participants 204(h) notice (for pension plans only) File Form 5310 Distribute payment election forms Distribute lump sums or annuity contracts (if applicable) DC plan termination process

23. Special rules if employer maintains another DC plan Must allow transfer to other DC plan Not applicable if other plan is an ESOP DC plan termination process (cont.)

24. Lost participants (FAB 2004-2) Must take all of the following actions Certified mail to the last known address Check related plan records Check with designated beneficiary Use IRS or SSA letter forwarding service If still not found Open IRA Establish interest-bearing federally insured bank account Escheat to the state Transfer to PBGC (when final regulations are issued) DC plan termination process (cont.)

25. Any amounts remaining may revert to employer Excess assets in DB plan 415 excess in suspense account in DC plan Taxable income to employer Subject to 50% excise tax (20% if certain requirements are met) Reversions

26. Questions?