Distress Termination

AAA

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.

INVESTOPEDIA EXPLAINS '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. Employee Retirement Income Security ...

    The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
  2. Pension Benefit Guaranty Corporation ...

    A non-profit corporation that functions under the jurisdiction ...
  3. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
  4. Defined-Contribution Plan

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

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

    The process of determining retirement income goals and the actions ...
Related Articles
  1. An Overview Of The Pension Benefit Guaranty ...
    Retirement

    An Overview Of The Pension Benefit Guaranty ...

  2. Keeping Track Of Retirement Plan Assets
    Retirement

    Keeping Track Of Retirement Plan Assets

  3. Is Your Defined-Benefit Pension Plan ...
    Retirement

    Is Your Defined-Benefit Pension Plan ...

  4. Lump Sum Versus Regular Pension Payments
    Retirement

    Lump Sum Versus Regular Pension Payments

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center