Once benefit accruals are frozen in a pension plan, the game is changed. The indefinite horizon becomes finite. If plan termination is the ultimate goal, the desired horizon is likely five years or less. Should strategic changes be made given this reduced timeframe? Actuary Heath Merlak discusses these pension issues.

1. Managing A Frozen Pension Plan Should Your Strategy Change? Presented by Heath Merlak, Actuary www.nyhart.com Copyright 2011. All Rights Reserved.

2. Heath Merlak Actuary heath.merlak@nyhart.com | (618) 606-4906 Qualifications or certifications:Fellow of the Society of Actuaries, a Fellow of the Conference of Consulting Actuaries, and is an Enrolled Actuary

3. Today’s Discussion How did we get here? Frozen Plans Are Still Active Plan Termination Considerations for Frozen Plans Strategies and Steps to Managing a Frozen Pension Plan 3

4. Several factors are driving plan sponsors to close or freeze their pension plans Shift from long-term to short-term outlook for determining pension costs Capital markets have been volatile Resulting contribution requirements and balance sheet impacts have been volatile 4

5. Frozen Plans Are Still Active Although frozen, all the requirements to manage the plan remain Minimum required contributions ASC 715 expense and disclosure Administration of the plan Most importantly, the majority of the pension risk still remains with the plan sponsor 5

6. Plan Termination Considerations 2

7. What’s Our Goal for Our Frozen Pension Plan? Maintain the plan and limit “noise” to our business Maintain the plan and target plan termination only if required funding and asset performance result in minimal cash outlay to terminate the plan (“Wait & See”) Develop strategy to terminate the plan within a stated period of time 7

8. Maintain the Plan Plan sponsors may choose to maintain the plan indefinitely for reasons that may include: Belief they can provide benefits at a lower cost than purchasing annuities and manage the associated risks Funding shortfall is too great to consider terminating the plan within the next 5 years Suspect participant data making plan termination too difficult 8

9. Steps to consider for maintaining a frozen plan Cost projections and sensitivity testing Determine expected required contributions Assess sensitivity of results to asset performance & interest rates Identify if settlement accounting will apply Assess strategies to lower risk Consider changing asset allocation as plan becomes better funded Add lump sum feature to the plan Review annuity purchase opportunities Administrative and compliance review 9

10. Wait & See Plan sponsors may target plan termination but allow the funding rules to naturally get them to fully funded over several years In this situation you will want to reviewsteps outlined on prior page and… 10

11. ….in addition, you should Conduct feasibility review Monitor progress more frequently than annually Review of investments Review plan document and participant data Determine strategy for settling obligations Assess strategies to lower risk and ease pain of plan termination Annuity buy-in and buy out Lump sum feature 11

12. Develop Strategy to Terminate the Plan Within Specified Timeframe Plan sponsors may target plan termination aggressively setting goals for plan termination In most cases, this will be accomplished through normal contributions plus additional amounts needed to fully fund the plan upon termination 12

13. Develop Strategy to Terminate the Plan Within Specified Timeframe The steps outlined previously apply in this situation along with the following: Feasibility review Coordinate with asset advisors Identify short-term implications Get buy-in from senior leadership, Board, etc. Begin thorough participant data review immediately Monitor funded status at least quarterly 13

14. Any Questions? This concludes our discussion

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