Voluntary Plan Termination

What Does Voluntary Plan Termination Mean?

A voluntary plan termination occurs when an employer ends a voluntary pension plan. Voluntary pension plans are a common retirement savings tool offered by employers. In addition to pensions, life insurance policies are often provided as a savings tool, as both types of policies may include investment components. Some employees roll their distributed pension assets into other retirement vehicles, including annuities, which can convert a lump sum into a stream of guaranteed income payments.

Insuranceopedia Explains Voluntary Plan Termination

If an employer voluntarily terminates a plan, federal law requires that the assets of the plan be distributed to the participants. This is because a portion of the employee’s paycheck is used to fund the pension premiums. When an employee changes jobs or leaves after the voluntary plan termination, they are entitled to take the assets with them, which can be worth a substantial amount of money. Workers who want a savings or investment component outside their employer plan sometimes look at permanent life insurance, which builds cash value over time in addition to providing a death benefit.