Multi-Phase Pension Plan Termination for a Global Energy Company

Decades of acquisitions left a global energy services company sponsoring dozens of frozen pension plans, many covering employees who had never worked directly for the company. When termination planning began, the company had three salaried plans and more than 25 hourly plans, covering roughly 3,000 participants combined.

The plans had frozen at different points over the years, long before termination planning, so no participants were accruing further benefits. With dozens of sponsored plans, there were significant ongoing administrative costs and Pension Benefit Guaranty Corporation (PBGC) premiums alongside decades of acquired data that would face renewed scrutiny once termination was underway. Before pursuing termination, the company needed confidence that the underlying administration could withstand direct scrutiny from the Internal Revenue Service (IRS) and PBGC.

Because SBA had administered the company’s plans for nearly a decade before termination planning began, the team had spent years cleaning and audit-testing the data. Once termination became the goal, they chose to start with the hourly population, even though there were more of them. The experience from those terminations informed the approach to the fewer yet more complex salaried plans.

For each plan termination, the company offered a lump-sum payment option to eligible participants who were not in pay status and within certain parameters. Then the company purchased an annuity for participants who declined the lump sum. Maximizing lump-sum elections reduced the total liability to be transferred and meant fewer people were included in the annuity purchase, making it easier to price competitively. 

The client’s timeline for IRS approval of the lump-sum window was uncertain, so the team prepared ahead of it. Paperwork and participant communications for the lump-sum offering were finalized in advance, and as soon as approval came through, outreach began. For retirees already receiving benefits, participant communications focused on clear, repeated reassurance that the plans and their benefits were not going away, they would just be provided differently.