This march of pension plans closing will continue as more companies switch to defined contribution plans. It’s an unfortunate turn of events and only really bodes well for the employees if they learn a little bit about how their defined contribution plan works. Such information as how much the company matches, when you become fully vested, what types of investment options there are and what your individual risk tolerance is.
Here is a succinct explanation of what how a single premium pension closeout works from the press release:
“Companies offering defined benefit plans purchase single premium pension closeout contracts, also known as Single Premium Group Annuity contracts, to transfer certain benefit obligations of a terminating pension plan or, in some cases, a plan settlement for specific groups to an insurer. Such group annuity contracts relieve the plan sponsor of the benefit obligations, administration and other related tasks and fees associated with maintaining a defined benefit pension plan. Other instances when these contracts could be used are: plan termination due to a new acquisition or merger, plant shutdown, bankruptcy, court ordered liquidation or a change in retirement plans from a defined benefit plan to a 401(k).
A single premium group annuity contract is issued to the plan trustee or employer in exchange for a single sum; and certificates are issued to individual annuitants covered by the defined benefit plan, to evidence their entitlement under the group contract to current and future payments from the insurer.”
These types of sales are not for the faint of heart as there is typically a large sum of money involved. Seems like this opportunity is only going to last a certain number of years as most companies who want to switch to defined contribution plans make that change.
There is more actuarial malpractice operating than external insurance fraud - maybe you should be listing that???
Posted by: Rob | April 8, 2007 1:33 AM | Permalink to Comment