Plan termination

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It has been suggested that this article or section be merged into Employee Retirement Income Security Act#Title IV: Plan Termination Insurance. (Discuss)

Plan termination for ERISA defined benefit pension plans, is either the voluntary act of a pension plan sponsor who no longer believes that the costs of providing the pension outweighs its benefits, or the involuntary termination by the PBGC when the federal pension agency believes that continued existence of the plan will jeopardize the pension insurance system.

The plan may be terminated voluntarily by an employer if it employer can show that it is fully funded and can purchase annuity contracts for the accrued benefits for all its employees or it may be terminated by the PBGC (Pension Benefit Guaranty Corporation) if the PBGC finds that the employer is endangering the federal insurance system.

Plan terminations are covered by Title IV of ERISA which has instructions on how to determine the actuarial liability associated with these terminations. When the employer is in bankruptcy with unfunded plans, the PBGC is responsible for insured benefits if the employer cannot pay for the shortfall in plan assets. The PBGC is then often an unsecured creditor because their liens are treated as post-petition.