This is the third post in my series on pension plan
restructuring (for prior posts see
April 12, 2012 and
June 8, 2012). In this post, I will examine the basics of
converting your defined benefit (DB) plan to a defined contribution
(DC) plan.
To avoid the uncertainty inherent in the funding of a DB plan,
where interest rates and volatile investment returns can
drastically alter a company's funding obligations, and to
achieve certainty going forward, employers may decide to convert
their DB plan to a DC plan.
A total DB to DC conversion would involve not only the
introduction of DC benefits on a prospective basis, but also the
commutation of all members' accrued DB entitlements into
account balances under the DC plan. However, because member consent
is required by regulatory policy for any accrued benefit
conversion, many conversions occur only on a prospective basis.
This can be achieved either by setting up a new DC plan, but is
more often implemented by
