Home » Guides » Employees » Benefits » Terminating a Retirement Plan

Featured Listings

 

Guide to Terminating a Retirement Plan

Employees, financial institutions and, sometimes, the IRS must be notified

By Wendy Davis


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:

  1. Simplified Employee Pension (SEP) or SEP Plus
  2. Savings Incentive Match Plans for Employees (SIMPLE) IRAs
  3. 401(k) Plans
  4. 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

More Featured Listings
BGI Defined Contribution
Simple yet Sophisticated Investing. Professionally Managed. Learn More.
SponsorMatch | LifePath
www.bgiDCsolutions.com
State Farm® Small Business Retirement Plans
Visit State Farm® for Your Retirement Planning. Get Info Online!
Retirement Plans
www.StateFarm.com
Earn From 1.90% to 2.20%
With AA+ Rated GE Capital Corporation. Not An Offer Of Securities For Sale.
For Investors | For Businesses
GEInterestPlus.com
401ks Designed for Small Businesses and Individuals
Low-cost, on-demand and easy-setup plans from ShareBuilder 401(k). Plans for 1 or more priced from $15 month. Learn more.
www.ShareBuilder401k.com
Related Resources

Recommended Solution Providers

Fidelity Investments
Company which provides its clients with retirement plans to suit their needs.

ADP Retirement Services
Offer retirement plans for owner only businesses, small businesses and midsized businesses.

Schwab: Retirement Plan Services
Charles Schwab Corporate Services (SCS) provides services to retirement plan sponsors and participants.

BenefitStreet
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

U.S. Department of Labor: Retirement Benefits
Site which includes information such as compliance assistance materials, definitions, and applicable laws and regulations.

Internal Revenue Service (IRS)
Tax information for retirement plans.

Benefitnews.com
Site for human resources professionals which includes information about retirement.

401K Help Center.com
Site which includes useful articles for small business owners on topics such as defining a 401k, choosing a 401k, and maintaining your plan.

Plan Sponsor
News, information, tools and services for retirement industry professionals

About.com: Retirement Resources
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.

Entrepreneur.com: Retirement Planning
Site about retirement planning including information about the solo 401k for employers.

FreeERISA.com: Free Access to pension and benefit data
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.

Society for Human Resource Management
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.

Employee Benefit Research Institute
Institute that seeks to develop sound employee benefit programs and sound public policy through objective research and education.

Best Blogs and Forums

401K Help Forum: Plan Sponsor Questions
Forum where plan sponsors can ask questions and get the advice needed to properly offer 401ks to employees.

FreeERISA Message Boards
Discussion forum for benefits advisors, sponsors, and plan providers to discuss their policies.



FEATURED LISTINGS
BGI Defined Contribution
Simple yet Sophisticated Investing. Professionally Managed. Learn More.
www.bgiDCsolutions.com
State Farm® Small Business Retirement Plans
Visit State Farm® for Your Retirement Planning. Get Info Online!
www.StateFarm.com
Earn From 1.90% to 2.20%
With AA+ Rated GE Capital Corporation. Not An Offer Of Securities For Sale.
GEInterestPlus.com
401ks Designed for Small Businesses and Individuals
Low-cost, on-demand and easy-setup plans from ShareBuilder 401(k). Plans for 1 or more priced from $15 month. Learn more.
www.ShareBuilder401k.com
Buy Stocks for $4
No Account or Investment Minimum. No Inactivity Fees. Learn More.
www.ShareBuilder.com
Lessons from a Decade of Profits
What your advisor doesn't know about growing your retirement fund.
www.profitableretirementplan.com

What WorksTM for Benefits

Frances Sharpe

Offering Employee Benefits

 By Frances Sharpe, freelance writer/editor
Offer an attractive benefits package that doesn't break the bank
Many small business owners think they can't afford to offer employee benefits. In reality, small businesses can't afford not to offer a benefits package of some type. Although insurance and other benefits can be costly, offering employee benefits can pay off in the long run. An attractive benefits package can help you recruit and retain quality personnel. It can also boost productivity and employee morale. The most common ... Read more

Related Topics

Free B2B search marketing whitepaper, B2B Search Marketing Strategy Guide: Advice From the Pros.
Download

To advertise on Business.com, click here
Business.com Home | Advertise With Business.com | Advertiser Login | Business Categories | Employees Guides | Jobs | Affiliate Program | About Business.com
© 2009 Business.com, Inc. All Rights Reserved. Privacy | Terms Of Use | Help | Business How To Guides
Business.com SMART BUSINESS RESULTS ™