Plan Termination

Plan Termination

How to terminate your firm’s retirement plan

Although employers establish retirement plans with every intention of having a long-term retirement vehicle available for employees, there are occasions when the decision is made to terminate them. Some, but not all, examples of occasions when the plan must be terminated are as follows:

• Firm has dissolved and is no longer doing business,
• Sole proprietor has passed away and a successor employer will not be continuing the plan, or
• Sole proprietor has retired and a successor employer will not be continuing the plan.

This section contains information on the requirements needed to terminate your plan, should that become necessary. This section also provides a detailed description of your role, as well as that of the plan participant and the ABA Retirement Funds Program (the Program).

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Plan Participant’s Role

Plan Administrator’s Role

The Program’s Role

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1. Determine if plan is terminating

2. Ensure Program has the most recent census information, especially for previously terminated participants.

3. For money purchase pension plans or target benefit plans, distribute 204(h) notice to participants prior to terminating the plan, in accordance with applicable guidance

4. Decide whether to request a determination letter on the termination and, if so, file the determination letter application with the IRS and notify all interested parties, as required

5. Adopt any necessary amendments to your adoption agreement

6. Notify the Program by submitting the Plan Termination Notification Form

7. Forfeit unvested employer contributions from the accounts of all participants who have incurred a five year break in service.

8. Fully vest all affected participants (i.e., current employees and former employees who have not incurred a five year break in service prior to the plan’s termination date

9. Reallocate remaining forfeiture balance among eligible participants if instructed to do so with the Plan Termination Notification form.

10. Make the final employer contribution, if any, and ensure all employee 401(k) salary deferrals have been contributed

11. If not addressed in the above steps, ensure the forfeiture account is liquidated and allocated as required.

12. Send the Distribution Request Form to participants (wait until you have received a determination letter, if one has been requested)

13. Participant elects whether to receive a distribution or roll over account assets

14. Complete the Distribution Request Form and send it to the Plan Administrator

15. Review, sign and send the Distribution Request Form to the Program

16. Process Form

17. Send check and confirmation notice regarding the distribution to participant

18. Send IRS Form 1099-R to participant and IRS

19. Prepare final Form 5500 for Plan Administrator within six months following the month in which the final distribution took place

20. Review and e-file final Form 5500 with DOL by the last day of the seventh month following the month in which the final distribution took place

*Note: Many of these steps can be performed by the Program; by signing and submitting the Plan Termination Notification Form, you are providing authorization for the Program to perform certain steps on your behalf.

Partial termination of the Plan

A partial termination of the plan may be triggered if a significant portion of the firm’s employees have severed employment due to firm-initiated employee dismissal such as a layoff. The IRS presumes that a partial termination has occurred if the plan’s turnover rate is at least 20% of the active employees. When a partial termination of the plan occurs, affected participants (i.e., those who are no longer participants due to the event) must become 100% vested. There is no requirement that the plan must be terminated or that other participants be vested or receive distributions.