Defined Benefit Plan Termination

By Bolton April 9th, 2024

Looking to terminate your defined benefit plan? The time has never been better.

If you are like most Defined Benefit (DB) Plan sponsors, your plan is probably frozen and most of your active employees are not eligible to enter the plan. You likely have a legacy liability sitting on your balance sheet, you are frustrated by increasing PBGC premiums and administrative costs, and you are probably waiting for the ideal time to terminate your plan. But do you know what it takes to terminate a DB plan?

In order to terminate your DB plan efficiently and effectively, you need to monitor the financial impact of the markets on your plan closely and have an actuarial partner with deep plan termination experience who can terminate your plan at a cost effective price and within a timeframe to help you take advantage of ideal market conditions. The actuaries at Bolton have that experience and we are ready to guide you through the process.

The ideal environment to terminate your DB plan is when interest rates are high (lowering the lump sum values and the annuity purchase price) and recent asset returns are favorable (improving your funded position). Market conditions can change quickly, so you must be prepared to act immediately once you know the market environment is ideal for terminating your plan.

How does it work?

A plan is generally terminated in two stages:

  1. The first stage is to offer a lump sum window to current active and terminated participants;
  2. The second stage is to buy annuities for retirees and any actives and terminated vested participants who do not elect a lump sum.

Why Bolton?

In the past, many plan sponsors would only use their current actuary to provide plan termination services under the assumption that a different actuarial firm could not learn their plan well enough to execute the termination in a cost-effective manner. Many actuarial firms have the same assumption and charge their clients full time and expense or even higher premium rates to execute the termination with the understanding that they will no longer get any future revenue from these clients. The result is extremely high fees to execute a plan termination and an actuarial staff that, while familiar with the client, may not have much experience terminating DB plans.

This assumption by plan sponsors and actuarial firms is not true. At Bolton, we have successfully completed several plan terminations where another actuarial firm was the incumbent actuary. Due to our experience with plan terminations, we were able to offer a deep discount compared to the current actuary’s quoted fees. In one case we saved the client hundreds of thousands of dollars on actuarial fees while also identifying issues with the determination of benefits that were not identified by their current actuary.

Our extensive experience allows us to terminate DB plans quickly and efficiently. We specialize in terminating small and mid-market size DB plans. Many firms will tell you it takes 12 to 18 months to terminate a DB plan - we have successfully terminated DB plans in as little as 6 months (from project approval to asset distribution) to help plans take advantage of favorable market conditions.

Why Now?

The market conditions are very favorable to terminate a DB plan now. The lump sum rates and annuity purchase rates are the highest they have been in decades and the S&P 500 is up 16% this year. Bolton is well positioned to help you take advantage of these favorable market conditions.

If you are interested in terminating your DB plan now, please contact us at 800-394-0263 or at