ERISA Partners provides the following general guidelines for employers to terminate defined contribution plans. This information is not intended as legal or tax advice. Please consult a tax advisor or legal counsel when deciding the proper course of action for your Plan.

Contact your relationship manager or our service team to initiate the plan termination process for your plan.

Step 1 of 8: Review your Plan records and prepare for termination #

Inspect all your Plan records, including payroll and Plan contribution records.

• Review your original Adoption Agreement and any Plan amendments that have been made since inception. If you need to complete an Adoption Agreement, it can be found here: https://erisa.net/portal
• Update the Plan for all changes in the law or Plan qualification requirements effective on the Plan’s termination date.
• Evaluate payroll records to ensure that all eligible participants have received timely deposits of Plan contributions.
• Confirm that all required IRS Form 5500 filings have been completed in a timely fashion.
• Corporations—Conduct appropriate meetings to draft a resolution approving the Plan’s change in status (e.g., terminated or frozen).

CORRECT ANY OPERATIONAL DISCREPANCIES #

Your relationship manager, attorney, and/or tax advisor can help you determine how to resolve any problems with your Plan(s). You may wish to review the Employer Plans Compliance Resolution System (EPCRS) at https://www.irs.gov/retirement-plans/correcting-plan-errors, which provides programs for employers to correct defects in plan operation.

As stated by the correction programs, if, upon review of your Plan records, you discover any operational discrepancies, efforts should be made to correct any deficiencies before termination to ensure that your Plan assets maintain their tax deferred status. Please contact your relationship manager, attorney, and/or tax advisor for more guidance regarding your specific circumstances.

Step 2 of 8: Establish an effective date of termination #

Generally, the last day of your Plan Year, or the date you cease operating your business, will be your effective date of termination. The termination effective date should be recorded and maintained with your Plan records.

Important: For Self-Employed 401(k) Plans, the employer should fund the Plan up to the effective date of termination.

Step 3 of 8: Execute a Termination Amendment #

After the termination effective date has been established, ERISA Partners will prepare a plan amendment that will terminate your plan for the plan sponsor to execute.

Step 4 of 8: Participant Notification (applies only to plans with common law employees) #

• ERISA Partners will prepare a notice letter for you to notify all Plan participants and beneficiaries about the Plan termination.
• Employers must provide all participants with the appropriate distribution notice and payment options.
  • Special Tax Notice Regarding Plan Payments, also known as the 402(f) notice (PDF).
  • If the Plan is subject to the Joint & Survivor Annuity Rules, such as a Money Purchase plan or a “merged” profit sharing plan that holds assets transferred from a Money Purchase plan, employers must provide an Explanation of a Joint & Survivor Annuity (PDF).

Finally, as a reminder, document all steps taken to ensure the timely receipt of notices and any associated communications sent to Plan participants for your records.

Step 5 of 8: Make any final contributions to the Plan #

The final contributions should be calculated through the termination date and deposits made to participant accounts by the employer’s tax filing deadline, including any extensions. If your termination creates a “short plan year” (less than 12 full months), you should discuss this situation with your tax advisor to determine the impact on your overall contribution limits.

Step 6 of 8: Pay all outstanding invoices #

If you have any outstanding invoices, they will need to be paid in full before any assets will be distributed from your plan.

Step 7 of 8: Distribute assets #

Distribute assets as soon as administratively feasible. Generally, this must be completed within one year from the termination effective date. Participants should request distributions using our online request form or by using our paper distribution form.

TIP: Avoid making distributions late in the year to avoid additional tax filings associated with dividends that may post to your account. For example, a request for a distribution in December may be followed by a dividend payment to the account in January of the following year. Any dividends will be distributed and need to be reported using IRS Form 1099-R of the year of the distribution.

Self-Directed Brokerage Accounts #

If your plan contains self-directed brokerage accounts, please consult with your client relationship manager to make sure a Form 1099-R is properly generated for any distribution from a brokerage account.

If your plan’s brokerage accounts are Schwab Personal Choice Retirement Accounts (PCRA), the Form 1099-R will be issued automatically when the participant’s distribution is processed.

Missing Participants #

In an effort to assist plan sponsors and employers who cannot locate Plan participants, the Department of Labor issued Field Assistance Bulletin 2014-01 (“FAB 2014-01”) which addresses the necessary steps for a plan fiduciary to:

• Distribute an account balance when efforts to communicate with a missing participant have failed. For more information, see the Department of Labor’s EBSA website, https://www.dol.gov/ebsa/.

The Department of Labor, in FAB 2014-01, lists the following search methods as the minimum steps the fiduciary of a terminated defined contribution plan must take to locate a participant:

• Send a notice using certified mail
• Check the records of the employer or any related plans of the employer
• Send an inquiry to the designated beneficiary of the missing participant
• Use free electronic search tools

FAB 2014-01 also describes additional appropriate search methods and the distribution options for a terminating plan if a participant cannot be located.

You may want to review this notice to determine if you have taken the necessary steps to locate missing participants in your Plan. Please consult a tax advisor or legal counsel when deciding the proper course of action for your Plan.

Step 8 of 8: File final IRS Form 5500/5500-SF/5500-EZ (required) #

• Regular 5500/5500-EZ filings, as applicable, are still required throughout the termination process.
• A final IRS Form 5500/5500-EZ is generally due by the end of the seventh month after the Plan assets are distributed. The instructions on the 5500/5500-EZ form include how you should file the form to indicate that your Plan is filing its final return.

For a copy of IRS Form 5500/5500-EZ, go to the IRS website at www.irs.gov.