Fund Transfer Fraud – Transfer in from another DB Fund

Employees of a company that is taken over by another can be victims of the Fund Transfer Fraud if they are Members of a Defined Benefit Fund (DB Fund) that has a higher accrual rate than the Fund of the acquiring company.

For example Employees of Company A are Members of a Defined Benefit Fund which has an accrual rate for the Member’s Benefit Multiple of 15% for each year of Fund Membership.

Employees of Company B are Members of a Defined Benefit Fund which has an accrual rate of 17.5% for each year of Fund Membership.

Company A takes over Company B and forces the transfer of all Member’s of Company’s B Fund into Company A’s Fund.

The Member’s Benefit Multiple up until the time of the transfer may or may not be preserved.

Scenario A

The Trustee of Company A’s Fund preserves the Member’s Benefit Multiple of Company B Employees before the compulsory Transfer.

Bob Black was a Member of Company’s B Fund for 5 years and then is a Member of Company A’s Fund for 35 years before retiring with a “final average salary” of $150,000 per annum.

If Bob Black had retained Fund Membership in Company B’s Fund for 40 years, his final salary Defined Benefit would have been $1,050,000.

However by being forced to transfer to Company A’s Defined Benefit Fund, Bob only receives $918,750. A loss of $131,250 even if his first five years with Fund B is preserved.

Scenario B

Wendy White was a Member of Company B’s Defined Benefit Fund for 35 years and the a Member of Company A’s Fund for 5 years, before retiring with with a “final average salary” of $150,000 per annum..

The Trustee of Company A’s Fund does not preserve the Member’s Benefit Multiple from Company B’s Fund so Wendy only receives $900,000 when she retires.

If the Trustee had preserved the Member’s Benefit Multiple from Company B’s Fund, Wendy would have received $1,031,250 or an additional $131,250

If Wendy had remained a Member of Company B’s Fund for 40 years she would have received $1,050,000 for an additional $150,000

 

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