Expert: Allen - 3/25/2006

Question
Thank you for your help in answering what I hope is a simple question.  In reviewing my employer's defined pension plan Form 5500 disclosure, I notice a peculiar change in 2004.  Specifically, the annual withdrawal rate from Schedule B Section 5g markedly changed from previous years (see below).  It specifically went from reasonable age-adjusted assumptions based on past performance to an "across the board" 20%.

My question is, is it a reasonable conclusion to presume that this means the plan will either be terminated or frozed in 5 years (withdrawal rate of 20% annually will mean no more benefits accumulate after 5 years).  If not, how else could this marked change be explained?

Many, many thanks for your help and advice!

Jim

2000-2003 Pension Form 5500
g  Annual withdrawal rates:  
                     Male     Female
(1) Age 25   g(1)    5.13%    17.91%    
(2) Age 40   g(2)    1.33%    5.70%    
(3) Age 55   g(3)    0.00%    0.96%      
h  Salary Scale N/A   6h    4.00%    4.00%    

2004 Pension Form 5500
g  Annual withdrawal rates:         
                     Male      Male
(1) Age 25   g(1)    20.00%    20.00%      
(2) Age 40   g(2)    20.00%    20.00%      
(3) Age 55   g(3)    20.00%    20.00%      
h  Salary Scale N/A   6h    4.00%    4.00%  

Answer
Not sure what it means other than the actuary expects 20% of the employees to leave each year. To me this implies one of two things. Either there are going to be substantial layoffs which the actuary is privy to or the actuary is using an assumption which will lower the required contribution and normally is not reviewed.
The law requires the plan administrator to give participants advance notice if the employer has amended the plan to reduce benefits that will be earned in future years, e.g., if the plan is being freozen. If this notice is not given, the benefit reduction can not occur.