Terminating a retirement plan

Retirement plans must be established with the intention of continuing indefinitely. However, you may terminate your plan when it no longer suits your business needs. For example, you may want to establish another type of retirement plan.

Steps to terminate a plan

Generally, the steps to terminate a retirement plan include:

1. Amend the plan to:
    
   • establish a plan termination date,
      
   • update the plan for all changes in the law or plan qualification requirements effective on the plan’s termination date,
      
   • cease plan contributions,
      
   • provide full vesting of benefits to all affected employees on the termination date (your plan should already have this provision), and
      
   • authorize the plan to distribute all benefits in accordance with plan terms as soon as administratively feasible after the termination date;
      
2. Notify all plan participants and beneficiaries about the plan termination;
    
3. Provide a rollover notice to participants and beneficiaries;
    
4. Plan to pay any outstanding required employer contributions to the plan;
    
5. Vest all “affected participants” 100% (applies to any employees or former employees with an account balance as of the termination date);
    
6. Distribute all plan assets as soon as administratively feasible (generally within 12 months) after the plan termination date to participants and beneficiaries;
    
7. File any applicable final Form 5500 series return; and
    
8. If desired, ask the IRS to make a determination about the plan's qualification status at termination by filing a determination letter request:
   • Form 5310, Application for Determination for Terminating Plan PDF (instructions PDF), for a pension, profit-sharing or other deferred compensation plan, or
      
   • Form 5300, Application for Determination for Employee Benefit Plan PDF (instructions PDF), for a multi-employer plan covered by PBGC insurance, a plan that’s only partially terminating, or for determining if the plan is part of an affiliated service group.

You must notify interested parties about your determination application.

Check with your plan’s financial institution or a retirement plan professional to see what further action is necessary to terminate your plan. You should document all actions taken to terminate the plan.

Plans with undistributed assets

A qualified retirement plan that has not distributed its assets is considered an ongoing plan and must continue to meet the qualification requirements, including amending the plan document for law changes. See more on missing participants.

Form 5310

Submit the following with your determination letter application on Form 5310:

• The appropriate user fee and Form 8717,
   
• A completed Procedural Requirements Checklist (from Form 5310),
   
• A complete copy of the plan document(s) and all amendments adopted since the last favorable determination letter,
   
• A copy of the last favorable determination letter, if applicable,
   
• A copy of the latest opinion or advisory letter, if applicable,
   
• A copy of all records of all actions taken to terminate the plan, and
   
• Copies of all required attachments and statements.

See Apply for a Determination Letter – Individually Designed Plans for additional submission instructions.

Defined benefit plan terminations

The following items must be submitted for defined benefit plan terminations:

• Form 6088, Distributable Benefits from Employee Pension Benefit Plans PDF,
   
• A signed and dated actuary’s certification of the adjusted funding target percentage (AFTAP) for the last 2 years which includes the year of termination, and
   
• A Schedule SB to the Form 5500 for the last 2 years which includes the year of termination and for any other year in which the AFTAP was below 80 percent (the 80 percent is replaced with 100 percent in any year in which the plan sponsor is a debtor in bankruptcy).

See Notice 2012-61. The PGBC website is also in important resource for defined benefit plan terminations.

Terminating specific types of plans

• Terminating a 401(k) plan
• Terminating a 403(b) plan
• Terminating a SIMPLE IRA plan
• Terminating a SEP
• Terminating a SARSEP
• Terminating a Payroll Deduction IRA

Related

• Plan Amendments Required Before Termination
• Retirement Plan Termination FAQs
• Determination, Opinion or Advisory Letters
• Types of Retirement Plans