Voluntary Termination

Voluntary Termination
See also

Voluntary termination can be associated with various activities, but very often refers to the employee's decision to leave the workplace of their own free will. It may also refer to the unrestricted cancellation of personal financial contracts, such as telephone contracts, car leasing, or voluntary cancellation of contracts at the institutional level[1]

Circumstances in which voluntary termination is not necessary

General guidelines- Generally, voluntary termination of a plan covered is unnecessary in situations in which the employer intends to continue an obligation to fund the plan or where the funding obligation is to be assumed by another employer or plan sponsor. The general guideline is the converse of the previously expressed guideline that termination is appropriate when an employer no longer wishes to fund the plan. Employers may wish to continue funding a plan for a variety of reasons and in a variety of circumstances which prior to Employee Retirement Income Security Act were frequently thought of as causing or requiring plan termination. Where funding continues, termination for may not be appropriate and some of the alternatives covered below may be more attractive to employers than termination.

Closing of a plant or facility - Upon the closing or permanent shut-down of a plant or facility, an employer frequently must decide the fate of the pension plan for plant employees. Where the shut-down is the result of severe business hardship, the employer may wish to stop funding the plan and, if so, voluntary termination is appropriate. However, in many circumstances, employers are both willing and able to continue funding the plan. Where this is the case, voluntary termination of the plan is unnecessary.

Maintaining a plan following a plant or facility closing obligates the employer to fund the vested benefits of the plan computed as of the date of closing and those accrued benefits which become vested in accordance with the plan subsequent to the closing. Where plan assets as of this date are less than vested benefits under the plan, the employer is essentially obligated to found the unfunded vested benefits if the plan in conformance with the funding standard account or it is alternative required under Employee Retirement Income Security Act.

However, if plan assets exceed vested benefits, a partial termination for purposes of the Interest Rate Swap may result. Where this is the case accrued but nonvested benefits under the plan will need to become vested as of the date of partial termination on the extent plan assets would be available for such benefits after meeting the vested obligations of the plan prior to termination.

As a consequence of such additional vesting, plan assets and vested benefits of the plan will be about equal. Under these circumstances (assuming no further crediting of service for vesting or accruals), maintaining the plan obligates the employer to make any contributions required under minimum funding as a result of „experience” losses, for example, investment and mortality losses. If no such losses occur, no further contributions to the plan may actually be made. Nevertheless, the obligation to fund, as contributions are required, continue and termination of the plan is unnecessary[2][3].  

References

Footnotes

  1. Bragg S. (e.) (2010), p. 92
  2. Pension benefit guaranty corporation (1997), p.4
  3. Towey D. (2012)

Author: Andżelika Kędzior