“How do I close my company’s retirement/pension/defined benefit plan?”
Written by: Clinton Brown CFP® ChFC, CLU, CASL® / BCJ Financial Group
Given the current market place we are facing, and the momentous trend to close down Defined Benefit plans, I thought I would address this topic.
When a pension plan is first created, it is usually formed with the intent to keep it forever. What employers didn’t realize was that eventually this little snowball would turn into a monstrous one! In fact, the harsh reality of pension plans is that they keep growing, and there is no slowing them down.
If a company simply cannot keep up with the annual contribution requirement, the annual required rate of return, and the constant concern of the pension assets themselves losing money, then they should consider closing the plan.
A plan can actually be closed by simply coordinating with your plan administrative team. They have all the correct documents and forms to fill out, file and submit so that the pension plan can be terminated legally. This is all well and good, and your firm will have done everything correctly, but there is one piece that is much more important, and much more engaged than the plan administration team. That would be your employees!
When a Pension Plan is being shut down, employees are notified. This notification, and then the education thereafter, are vital. Employees can become highly emotional when they find out they have lost their retirement plan. With some guidance and education, that emotion can be contained and redirected. An Employer’s worse nightmare is to have a mutiny on hand of disgruntled employees.
It is very important to include a firm like BCJ Financial in the process. Why? Because they will help each of the employee’s understand their options, and understand the short and long-term impact this will have on their overall retirement picture. By having a firm come in and help give the employees immediate information and direction can prove to save moral. We also provide a book, “The Pension Dilemma”, that can help those employees understand why this is happening to them.
Seeing that these employees are losing one plan, it would be important to offer another. It would be a good idea to offer a 401k plan to “replace” the dying pension. Also, this gives the employees a really good option on where to “rollover” their pension money. Further, as they begin this new adventure with a new 401k plan, we provide them with another book “Financially Sound” that gives them distinct insight on how to take control of their financial lives.
BCJ FG 15-84