CPC CPC Plan Termination & Mergers 1 — Questions and Answers
Question 1: When a single-employer defined benefit plan terminates in a standard termination, what must the plan administrator certify before terminating?
- Plan assets are sufficient to satisfy all benefit liabilities (Correct answer)
- The plan has operated for at least 10 years
- All participants have reached normal retirement age
- PBGC premium payments are current for the prior 5 years
Correct answer: Plan assets are sufficient to satisfy all benefit liabilities
In a standard termination, the plan administrator must certify to the PBGC that plan assets are sufficient to cover all benefit liabilities before the termination is final.
Question 2: What is a 'distress termination' of a defined benefit plan?
- A termination initiated when the plan is overfunded
- A PBGC-initiated termination to protect participants when the plan is severely underfunded
- A voluntary termination where the employer is in financial distress and cannot fund all benefit liabilities (Correct answer)
- A termination triggered by a plan amendment reducing benefits
Correct answer: A voluntary termination where the employer is in financial distress and cannot fund all benefit liabilities
A distress termination is a voluntary termination initiated by an employer in financial distress (e.g., bankruptcy) that cannot satisfy all plan liabilities; the PBGC steps in as trustee if liabilities exceed assets.
Question 3: In a defined contribution plan termination, what happens to unvested employer contributions?
- They are forfeited and returned to the employer
- Participants become 100% vested in all accrued benefits upon plan termination (Correct answer)
- They are allocated to remaining participants as a forfeitures allocation
- They are transferred to the PBGC
Correct answer: Participants become 100% vested in all accrued benefits upon plan termination
ERISA requires that all participants become fully (100%) vested in their accrued benefits upon plan termination, regardless of their prior vesting schedule.
Question 4: A plan merger must not decrease the accrued benefits of any participant. Which ERISA section governs this requirement?
- ERISA Section 204(g) (anti-cutback)
- ERISA Section 208 (Correct answer)
- ERISA Section 402(b)
- ERISA Section 514
Correct answer: ERISA Section 208
ERISA Section 208 requires that no plan merger, consolidation, or transfer of assets reduce any participant's accrued benefits below what they would have received had the plan terminated on the merger date.
Question 5: What PBGC form must be filed to initiate a standard termination of a single-employer defined benefit plan?
- PBGC Form 500 (Correct answer)
- PBGC Form 600
- PBGC Form 10
- IRS Form 5310
Correct answer: PBGC Form 500
PBGC Form 500 (Standard Termination Notice) is filed with the PBGC to begin the standard termination process for a single-employer defined benefit plan.
Question 6: What is the IRS filing required when a qualified plan terminates to request a determination that the plan is still qualified at termination?
- Form 5500-SUP
- Form 5310 (Application for Determination for Terminating Plan) (Correct answer)
- Form 5330
- Form 1099-R
Correct answer: Form 5310 (Application for Determination for Terminating Plan)
IRS Form 5310 is filed to request a determination letter confirming the plan was qualified at the time of its termination.
CPC CPC Plan Termination & Mergers 1
When a single-employer defined benefit plan terminates in a standard termination, what must the plan administrator certify before terminating?