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.

  1. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
  2. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  3. Pension Fund

    A fund established by an employer to facilitate and organize ...
  4. Retirement Planning

    The process of determining retirement income goals and the actions ...
  5. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
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