What Happens When a Pension Is in Wind-up?
- A pension wind-up occurs when a company is no longer able to make the required financial contribution to the pension. The most common reasons for this are financial insolvency, a company merger or acquisition. The wind-up has a specific date, referred to as the wind-up date, after which pension members no longer receive benefits. Members who reach retirement during the wind-up may not receive their full pension benefits.
- Pension members typically are required to receive notice of the wind-up date within 30 days of the commencement. This notification, made in writing by the pension's trustee, includes important information, including the reason for the wind-up, death benefits, and the name and address that members can use for further inquiries. If the wind-up is the result of company insolvency, members should also receive notice that an independent trustee has been appointed to handle the wind-up.
- Once a wind-up begins, the trustee must make an assessment of the pension's assets and determine the accuracy of the plan's data. The trustee uses this information to calculate the level of benefits or liability the pension must pay out. Any investments the pension has, such as stocks, bonds or mutual funds, are liquidated and deposited into an account until the funds can be distributed to pension members. The amount of money paid to members is determined by the value of the pension's assets.
- Pension wind-ups can take many years to complete. The main obstacle to completing the wind-up is the process of liquidating the company's assets. While liquid assets such as stocks and bonds may easily be sold, if the company holds real estate, it can take awhile to find a buyer, particularly if the real estate market has slowed. If your company is experiencing a wind-up, you should contact your pension trustee for more information about your company's specific process.