 |
|
Guide to Terminating a Retirement Plan
Employees, financial institutions and, sometimes, the IRS must be notified
By Wendy Davis
|
|
Extremely
Useful
8.0
out of 10
|
|
| |
|
| |
Theoretically, retirement plans are supposed to last indefinitely. But the reality is, there may come a time when you need to end your company's plan. You might merge with another business, for example, or decide to shutter operations. If you do opt to terminate a retirement plan, however, be aware that the Internal Revenue Service might hit you with a hefty tax bill if it decides that the plan was never intended to be permanent. For that reason, be sure to talk with a tax advisor before making any irrevocable moves. If you go ahead with the termination, you'll need to fill out a variety of paperwork and keep your employees abreast of the situation. The steps required to terminate depend on the type of plan you have. There are several basic models: - Simplified Employee Pension (SEP) or SEP Plus
- Savings Incentive Match Plans for Employees (SIMPLE) IRAs
- 401(k) Plans
- Profit-sharing or money purchase pension plans
Action Steps
The best contacts and resources to help you get it done
 Terminate SEP Plans
To terminate SEP Plans, inform the bank handling the plan that you intend to end your contract and will cease making contributions; doing so will require filing a plan amendment. Tell employees that you will no longer fund the plan.
I recommend: The IRS publishes online instructions for terminating SEP plans.
Terminate SIMPLE IRA Plan
You must tell plan participants in advance that you intend to terminate a SIMPLE IRA. The rules state that you must give notice during the calendar year before the termination will take effect.
I recommend: See the IRS instructions for terminating a SIMPLE plan.
Terminate 401(k) Plans
The steps to end these plans are: Inform the employees, amend the plan document, distribute the assets and file final forms with the IRS. The financial institution that administers the plan may have other paperwork as well.
I recommend: The IRS requirements include filing the last form 5500 and possibly a form 5300 to ask the IRS to determine the plan's status at the time of termination.
Terminate Profit-Sharing or Money Purchase Pensions
You must give written notice to all plan participants stating that you will stop making contributions. You also will have to execute a formal document terminating the plan as of a certain date. Assets must be distributed to employees as soon as possible, typically within one year. You'll also have to file form 5500 and 5310 with the IRS.
I recommend: The IRS publishes instructions for completing form 5500, as well as form 5310.
Tips & Tactics
Helpful advice for making the most of this Guide
- Plan ahead. You must tell plan participants that you intend to end a SIMPLE IRA in the calendar year before the termination takes effect.
- Retain copies of all documents you submit to the IRS, your bank and your employees.
The official source of Terminating a Retirement Plan is the Pension Plans page at Business.com
 Recommended Solution Providers | Back to top |
|
Company which provides its clients with retirement plans to suit their needs.
Offer retirement plans for owner only businesses, small businesses and midsized businesses.
Charles Schwab Corporate Services (SCS) provides services to retirement plan sponsors and participants.
Company which provides record keeping services for 401K plans and a full spectrum of pension services, including plan design, plan installation, qualification with the Internal Revenue Service, preparation of summary plan description, annual administration and preparation of all government reporting forms.
|
|
 Best Sites to Learn More | Back to top |
|
Site which includes information such as compliance assistance materials, definitions, and applicable laws and regulations.
Tax information for retirement plans.
Site for human resources professionals which includes information about retirement.
Site which includes useful articles for small business owners on topics such as defining a 401k, choosing a 401k, and maintaining your plan.
News, information, tools and services for retirement industry professionals
Site contains information about 401(k) plans, retirement calculators, pensions, social security, cash balance retirement plans, IRAs, Roths, annuities, government resources, estate planning, and investments.
Site about retirement planning including information about the solo 401k for employers.
FreeERISA.com is intended as a useful, website where visitors may view retirement and welfare benefit information on the group or groups of their choice as this data appears on Form 5500 for free.
Talks about the various types of plans including defined benefit plans, defined contribution plans, education and training employees about retirement, non-qualified deferred compensation plans and retirement trends.
Institute that seeks to develop sound employee benefit programs and sound public policy through objective research and education.
|
|
 Best Blogs and Forums | Back to top |
|
Forum where plan sponsors can ask questions and get the advice needed to properly offer 401ks to employees.
Discussion forum for benefits advisors, sponsors, and plan providers to discuss their policies.
|
|
 Is any content on this page inappropriate? To let us know, please click here.
|
|
|
 |
|
Ads by Google
Objective Guidance in Any Market For Your 401k Rollover. Start Now.
MetLife as Low as $17 per Month for $500K of Coverage - Get Free Quote
Work with the national leader in Cash Balance Plan Design
Put your career on the fast track with our proven education programs.
|
Related Resources from Business.com
Comments
