Skip to main content

You are here

Advertisement

Taking Over a DB Plan

Taking over the actuarial and administrative services of an existing defined benefit plan can be a challenge. And it has been said that there is an “80/20/80 Takeover Rule,” which says that 80% of your headaches come from 20% of your clients, and 80% of those 20% are takeovers.

In dealing with a takeover, the actuary of the acquirer must first collect sufficient information from the plan administrator, the actuary that served the acquired and/or the third party administrator, says Lauren Okum in “DB Plan Takeovers,” an article that appeared in the Fall 2015 issue of Plan Consultant. Okum, owner of Premier Actuarial Solutions, notes that “sufficient” information may vary from plan to plan, but that she generally begins with the following items she would like to obtain.

1. Plan documents.  At the very least, collect the current executed plan document and all corresponding plan amendments. If the plan is combined with a defined contribution plan for testing purposes, collect that plan document as well. The current determination letter (or opinion or advisory letter if the plan is a pre-approved plan) can be helpful as well.
2. Census information. The census should identify all of the participants included in the prior year’s actuarial valuation, and it should include any information necessary to calculate benefits and liabilities, including historical plan compensation and hours. Information such as dates of participation, vesting service, credited service and accrued benefits are very helpful.
3. Asset information. Collect a Statement of Net Assets as of the most recent valuation date, including a reconciliation of the trust since the prior valuation date, as well as the dates and amounts of any contributions, distributions, fees, etc. paid from the plan.
4. Actuarial reports and certifications. While only the most recent actuarial report is necessary for a takeover, it can be wise to collect the reports for the three most recent plan years.
5. Participant communications. You should collect the Summary Plan Description, any applicable Summary of Material Modifications, individual benefit statements, the most recent Annual Funding Notice or Summary Annual Report and any notices informing participants of benefit restrictions.
6. Government filings. You may download the prior Form 5500 and Form 5500-SF filings, including the Schedule SB, from www.efast.dol.gov. You also should collect the full Form 5500-EZ filings for the past three years and also may want to collect PBGC premium and Form 8955- SSA filings.

But gathering this information may be easier said than done, argues Okum, who posits that it can be difficult to obtain information from the actuary that had served the plan before the takeover. In addition, an actuary may be willing to provide it but may nonetheless lack all the historical information one seeks.

Okum argues that the new actuary should make a reasonable effort to obtain the data and match the accrued benefits. If the data cannot be obtained, she says, the actuary may use the accrued benefits provided, disclosing the reliance.

Ultimately, actuaries should seek to cooperate and should communicate with each other when there is a takeover, Okum argues, which will help in correcting any errors and keeping the transition smooth.