Distress Termination

DEFINITION of 'Distress Termination'

A thinning of an employee base that takes place when a company's benefits plan has insufficient funds to cover the expenses associated with paying the employees' earned benefits. This frequently occurs when a company can no longer stay in business, or when the business attempts to avoid or delay closing. Once a plan is terminated, all activities, such as benefit accruals and vesting, end.

BREAKING DOWN 'Distress Termination'

A company may chooses to terminate a benefits plan for many reasons: if it has declared bankruptcy, if it has filed a petition to reorganize in bankruptcy and it is determined that the company cannot reorganize with the plan intact, if it demonstrates that it cannot remain in business unless the pension plan is terminated or if it can demonstrate that the costs associated with the pension plan have become unreasonable due to a decline in the number of participating employees. The Pension Benefit Guaranty Corporation (PBGC), established by The Employee Retirement Income Security Act of 1974 (ERISA), protects the pensions of private defined benefit pension plans, and pays benefits to pensioners of failed pension plans.

RELATED TERMS
  1. Current Service Benefit

    The amount of pension benefit accrued by an employee who had ...
  2. Pension Fund

    A fund established by an employer to facilitate and organize ...
  3. Pension Adjustment Reversal - PAR

    A numerical calculation in certain Canadian pension plans that ...
  4. Plan Participant

    A plan participant either contributes into a pension plan or ...
  5. Advanced Funded Pension Plan

    A pension plan that is funded concurrently with the employee's ...
  6. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
Related Articles
  1. Retirement

    7 Signs Your Pension Fund Is In Trouble

    Even if you're lucky enough to have a pension plan, you can't assume it'll pay out.
  2. Retirement

    Understanding Defined Benefit Pension Plans

    An employer-sponsored retirement plan where employee benefits are based on a formula using factors such as salary history and duration of employment.
  3. Retirement

    Pension Plans: Pain Or Pleasure?

    Employees have a love/hate relationship with this retirement option.
  4. Retirement

    How Safe Is Your Pension?

    A 2014 law permits some private pension plans to reduce benefits. How to figure out if your retirement income is endangered.
  5. Retirement

    New 401(k) Pension Rollover Rule: Pros and Cons

    Is the new rule allowing participants to roll their 401(k) balances into pensions a good idea?
  6. Retirement

    Can You Count On Your Pension?

    We look at how to determine the health of your company's pension plan, and what to do if things are looking grim.
  7. Retirement

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  8. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  9. Retirement

    How Pensions, Social Security Differ

    Both pensions and Social Security provide an income stream to retirees, but they differ widely on how they're structured and funded. Here's the lowdown.
  10. Financial Advisor

    Are Cash Balance Pensions the Best for Small Biz?

    Are cash balance pensions the right solution for your small business clients? Here's why they may or may not work for your firm.
RELATED FAQS
  1. The company I am receiving my pension plan from has just filed bankruptcy. Could ...

  2. What's the difference between a 401(k) and a pension plan?

    Discern the differences between 401(k) plans, in which employees assume the market risk, and pension plans, in which the ... Read Answer >>
  3. Are Canadian Pension Plans inflation-protected?

    Learn about the Canada Pension Plan and how it adjusts its contributions and benefits each year for changes in inflation ... Read Answer >>
  4. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ... Read Answer >>
  5. How do I "vest" something?

    Vesting is a term usually related to pension plans that some employer's provide to their employees.An employer may make contributions ... Read Answer >>
  6. How do pay-as-you-go pension plans work?

    Learn what a pay-as-you-go pension plan is and how it is different from fully funded pension plans. Understand how public ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center