Terminated Vested Buyouts Timeline
July 7, 2014
For defined benefit retirement plan sponsors who desire to distribute terminated vested buyouts by the end of a 12/31 fiscal year, this timeline begins with the end in mind. The process begins with a buyout analysis, its impact on the plan and company, and potential accounting charges. Lump sum calculations, operational considerations, and resources committed to administer the buyout window are also reviewed.
A good rule of thumb is on average 50% of those offered a lump sum buyout will take a distribution. A strong marketing program directly correlates with maximizing that percentage.
One common issue encountered during the process includes difficulty in confirming spousal consent. A best practice is to request spouse information ahead of time in the announcement letter.
When the window opens, you can expect 120% of those eligible for the buyout, to call you or the outside administration firm call center (some participants call more than once). Be prepared to address returned packages that are incomplete or include errors so they can be fixed before the window expiration.
One additional word of caution is to decide up front how you will handle procrastinators, those who miss the buyout window. One of the best approaches is to state your policy up front in the plan amendment to avoid any difficult discussions with employees who missed the buyout opportunity.