Split an Atom, Terminate a Plan…

Tomato, tomahto. Split an atom, terminate a pension plan. A recent blog post suggests they may not be as different as they seem.

In “The Big Bang Theory and Pension Plan Terminations,” a recent post in Retirement Town Hall, Javier Sanabria argues that both will gradually go away if left alone — but they also can meet their end in a “very big bang.”

For pension plans, that bang is total termination. Sanabria says terminations are dramatic steps because they make it possible to distribute lump sums and place annuities for everyone remaining in the plan at the same time.

But Sanabria does note that a total termination can eventually be accomplished through fractional termination. In fact, he says, “A big bang total termination is just a whole bunch of fractional terminations bundled up to occur all at once under a formal regulatory framework.” Fractional terminations can include the following:

• lump sum windows;

• cash-out initiatives; and

• off-loading plan obligations to an insurance company through the purchase of an annuity.

Fractional terminations, Sanabria says, allow greater flexibility in timing and financial control.