DEFINED BENEFIT EXIT STRATEGIES
Your defi ned benefi t (DB) pension plan is frozen. Now what? Effective DB exit strategy requires more than simply terminating the plan—it involves thorough strategic planning, disciplined execution and careful monitoring. To achieve the most favorable outcome, sponsors must:
Develop a distribution strategy;
Understand terminal funding costs;
Establish a target termination date;
Design a glide path to de-risk as the
termination horizon shortens; andMonitor terminal funding levels to
seize opportunities when presented by the fi nancial markets.
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Retirement Plan Strategies Defined Benefit Exit Strategies
Helping you manage all aspects of the plan exit process- systematically
DB PLAN TERMINATION: A COMPREHENSIVE APPROACHYour defined benefit (DB) pension plan is frozen. Now what? For most sponsors, the ultimate objective is to eliminate the plan and its burdensome administrative duties and uncertain funding and accounting results.Yet an effective DB exit strategy requires more than simply terminating the plan—it involves thorough strategic planning, disciplined execution and careful monitoring. To achieve the most favorable outcomes possible, sponsors must:
For Institutional Plan Sponsor use only. Not to be distributed to plan participants or the general public. (continued on back...)
CUSTOMIZED ANALYSIS AND STRATEGYA thorough evaluation of your plan is a critical first step. Leveraging Prudential’s extensive knowledge of risk-transfer solutions and powerful monitoring tools, our consultants can guide you through all phases of the process.
Our thorough approach combined with our Plan Termination Readiness Report provide all the key information needed to:• Understand your distribution options and map
out the distribution phases, including:- Annuity purchases- Lump-sum payouts- Conditional rollovers- Innovative, secure retirement options
including Prudential IncomeFlex®
• Establish and monitor your plan termination horizon based on your distribution strategy
• Implement and manage a dynamic investment policy statement that enables your plan to respond rapidly to market changes within a strategic policy framework
• Recognize the timing requirements for completing all participant communications and regulatory filings
ABC Company Retirement PlanMarch 31, 20XX Plan Termination Readiness Report
Snapshot of the Past Quarter
Assets $ 46,750,000Contributions 2,500,000Disbursements (500,000)Earnings 4,250,000Assets (EOQ) $ 53,000,000
Liabilities (BOQ) $ 55,000,000Disbursements (500,000)Plan Aging 550,000(Gains)/Losses 750,000Liabilities (EOQ) $ 55,800,000
BOQ = Beginning of Quarter EOQ = End of Quarter
Plan Termination Funded Status
100%
90%
80%
70%
60%
3/31320xx 6/30/20xx 9/30/20xx 12/31/20xx 3/31/20xx
March 31, 20xx
60%30%
10%
BondsCashEquities
Total Plan Assets: $53,000,000
March 31, 20xx
50%
20%
30%
DefinedIn-PaymentActive
Total Plan Termination Liabilities: $55,800,000
Change of Position for Termination Deficit/(Surplus) ($ Millions)
12/31/20xx 3/31/20xx
Liabilities
$8.25
$2.80
ContributionsEarnings/Distributions
Quarterly Update
Group annuity rates remained fairly level over the last quarter. Net investment return for the
quarter was 1.4% (not annualized).
Expected time to reach plan termination
sufficiency
5 Years and 6 Months
Joe Smith, Vice President & Consulting Actuary, 860.534.xxxx
These charts are shown for illustrative purposes only.For Institutional Plan Sponsor Use Only. Not to be distributed to plan participants or the general public.
January / Plan Year
This chart is shown for illustrative purposes only
• Develop a distribution strategy;• Understand terminal funding costs;• Establish a target termination date;
• Design a glide path to de-risk as the termination horizon shortens; and
• Monitor terminal funding levels to seize opportunities when presented by the financial markets.
Exit Planning Freeze Implementation
Administrative Outsourcing
Managing & Monitoring Termination
Horizon
Plan Termination
INITIATE MANAGE TERMINATE
CUSTOMIZED ANALYS IS & STRATEGYA thorough evaluation of your plan is a critical fi rst step. Leveraging extensive knowledge of risk-transfer solutions and powerful monitoring tools, our consultants can provide all the key information needed to understand your distribution options and map out the distribution phases, including:
Annuity purchases
Lump-sum payouts
Establish and monitor your plan termination horizon based on your distribution
strategyImplement and manage a dynamic investment policy statement that enables your
plan to respond rapidly to market changes within a strategic policy framework
The path to plan termination is more certain when it follows a systematic approach. That’s why our DB Exit Planning Roadmap includes activities and processes that eliminate the ineffectual wait-and-see policy that many plan sponsors adopt and put you in control of your DB Exit Strategy from beginning to end.
THE DB EX IT P LANNING ROADMAP
THE R IGHT OUTCOMEYour participants have a critical decision to make: what will they do with their benefi t? We can help you give them the tools to make wise decisions. Lockton can also help your organization enhance your defi ned contribution plan so that it is a highly attractive alternative or supplement to the current DB program. Auto-enrollment, auto-increase capabilities, and different matching strategies can build participation and deferral rates increasing the likelihood of a secure retirement for your participants.