While a retirement plan is established with the intention of contributing indefinitely, the plan may be terminated when it no longer suits the needs of the business. Reasons may include company changes, such as acquisition, merger, bankruptcy or the establishment of a new plan type.

Steps in Plan Termination

Generally, the process of terminating a retirement plan involves six steps:

1. Plan amendments
2. Providing notice of termination to all participants and beneficiaries
3. Paying any outstanding required employer contributions
4. Distributing plan assets
5. Filing the final Form 5500 series return
6. Optionally, submitting Form 5310 to the IRS to request a final determination letter on the plan’s qualification status

Notice to Participants & beneficiaries

Participants and Beneficiaries must receive notice of Plan termination and their election rights for distribution between 30 and 180 days before the date of distribution. Notices should only be sent when the Plan Sponsor is reasonably certain that distributions will occur within the following 180-day window, as required under IRS and DOL guidance.

Plan Amendment

The Plan must be amended to:

• Establish a termination date
• Comply with all changes in the law and qualification requirements
• Cease contributions
• Provide full vesting to all participants
• Authorize distributions upon termination

Although the Plan is being terminated, it must comply with all law changes and qualification requirements even if the Plan is not a part of the current restatement cycle. This includes any interim amendments required to reflect recent legislative changes in effect at the time of termination. Full compliance will allow the plan to maintain tax-preferred status at termination and ensure distributions are eligible for rollover to another qualified plan. Sponsors may refer to the IRS’s Required Amendments List for the most current qualification updates.

Plan Sponsors may request IRS confirmation of the plan’s qualification status upon termination by submitting Form 5310 and paying the required fee. While optional, this can help provide closure and documentation for the plan’s final status.

Distribution of Assets

Plan assets must be distributed as soon as is administratively feasible after the Plan termination date. Per IRS guidance, distributions should occur within a reasonable period—typically within one year of the plan termination date. A plan is not considered terminated until all assets are distributed. If distributions are delayed, the plan must continue to operate in compliance with the Internal Revenue Code.

Additional Requirements for Defined Benefit Plans

Pension plans covered by Title IV of ERISA, must comply with additional requirements imposed by the Pension Benefit Guaranty Corporation(PBGC), including reporting obligations and specific plan termination procedures. Sponsors should consult the PBGC website (www.pbgc.gov) for guidance on standard and distress terminations.

For Assistance with Plan Terminations

If you need help with plan terminations, contact Ekon Benefits at (314) 367-6555 or info@ekonbenefits.com.

Straight From the Source

For more information on terminating a retirement plan, visit the IRS Terminations page: https://www.irs.gov/retirement-plans/terminating-a-retirement-plan