This chapter describes what might happen to your benefits if your employer decides to terminate or merge your pension plan with another plan. It covers the following questions:
- Is Your Accrued Benefit Protected If Your Plan Merges With Another Plan?
Although pension plans must be established with the intention of being continued indefinitely, employers may terminate plans. If your plan terminates or becomes insolvent, ERISA provides you some protection. In a tax qualified plan, your accrued benefit must become 100 percent vested immediately upon plan termination, to the extent then funded. If a partial termination occurs in such a plan, for example, if your employer closes a particular plant or division that results in the termination of a substantial portion of plan participants, immediate 100 percent vesting, to the extent funded, also is required for affected employees.
If your terminated plan is a defined benefit plan insured by Pension Benefit Guaranty Corporation, PBGC will guarantee the payment of your vested pension benefits up to the limited set by law. Benefits that are guaranteed or that exceed PBGC's limits may be paid depending on the plan's funding and on whether PBGC is able to recover additional amounts form the employer. For further information on plan termination guarantees, write to the Pension Benefit Guaranty Corporation, Administrative Review and Technical Assistance Department, 1200 K Street, N.W., Washington, D.C. 20005, telephone (202) 326-4000.
If a plan terminates and the plan purchases annuity contracts from an insurance company to pay pension benefits in the future, plan fiduciaries must take certain steps to select the safest available annuity. Thus, in accordance with Department of Labor guidance, the plan must conduct a thorough search with respect to the financial soundness of insurance companies that provide annuities, to better assure the future payment of benefits to participants and beneficiaries.
Your employer may choose to merge your plan with another plan. If your plan is terminated as a result of the merger, the benefit you would be entitled to receive after the merger must be at least equal to the benefit you were entitled to receive before the merger. Special rules apply to mergers of multiemployer plans, which are generally under the jurisdiction of the PBGC.
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