Plan Termination: Filing and Letters
Filing a Final Form 5500
Once the final distribution has occurred from the plan and no further assets remain, the Program will prepare the final Form 5500. Even if you had not been filing Form 5500 due to the size of your plan, you are always required to file the final Form. The return will be marked “final,” which notifies the government that the plan has terminated. The final Form 5500 will be provided by the Program in the sixth month following the close of the plan’s short plan year which ended on the last day of the month in which the final assets were distributed. The Plan Sponsor must file the Form 5500 seven months after the close of the short plan year. For assistance with electronic filing, please visit the Program’s website at www.abaretirement.com and go to the “Form 5500 Filing Information” page under Resources.
Filing for a Determination Letter on the Plan’s Termination
Just as you can file for a determination letter on the plan’s qualification, you can also request that the IRS review and approve the qualified status of your plan upon its termination. To file, your plan must be updated for any recent changes in law. Filing for a determination letter is not required, but it is always recommended. In the event of an audit, the auditor will request a copy of any determination letter that was obtained in connection with the plan’s termination. Some employers decide not to proceed with the termination until a determination letter has been issued. This is a process with which your benefits attorney or legal advisor can provide assistance, as the Program does not offer this service.
SAMPLE Notice of Plan Termination
If the plan has been or will be terminated, the following sample 204(h) notice may be modified and used by the Plan Administrator to notify the plan participants. You may delete the line at the bottom about a small copying charge if you are not charging one.
NAME OF PLAN
On ________________, the (Name of Firm) (the “Firm”) adopted (or will adopt) an Amendment to the (Name of Plan) (the “Plan”). The Amendment makes changes to the Plan that will have a significant impact on (1) eligibility to participate in the Plan and (2) the benefits provided under the Plan.
The Amendment is effective ________________.
(a) The Amendment Closes the Plan to New Participants
The Amendment closes the Plan to new Participants. No one can enter the Plan (or reenter the Plan after (effective date)). [Insert an example that accurately reflects the Plan’s eligibility rules. For example, “Employees hired or rehired after (effective date), cannot become Participants.”]
(b) The Amendment Freezes the Plan Benefits as of (effective date)
Under the Plan’s current benefit formula, (insert description of the Plan’s allocation formula. For example, “the Plan Account of each Participant who completes a Year of Service in a Plan Year (calendar year) is credited with a contribution equal to _________% of his Compensation for the Plan Year. Each Participant’s Plan Account is adjusted for investment gains and losses on a daily basis.”)
No contributions will be credited to any Participant’s Plan Account for any calendar year beginning after (effective date). Plan Accounts will continue to be adjusted for investment results until they are distributed.
The Plan Accounts of Participants who are Employees on (effective date) or who are former employees who have not incurred a five-year break in service prior to the plan’s termination date, will be 100% vested and non-forfeitable as of (effective date). [Note: The Plan may also be required to vest former Participants, depending on Plan provisions.]
(c) The Amendment Terminates the Plan as of (effective date)
Plan Accounts will be distributed [as soon as administratively possible] or [after the IRS has issued a favorable determination letter with respect to the termination of the Plan].
[If a Money Purchase Pension Plan] Before Plan Accounts are distributed, each Participant will be given a choice between (1) receiving his or her Plan Account in a lump sum distribution and (2) directing the Plan Administrator to use his or her Plan Account to purchase an annuity contract from an insurance company.
Please refer to your Summary Plan Description for more information about the current provisions of the Plan, including definitions of the terms used in this Notice.
Please contact _______________________ at _____________ if you have any questions. A copy of the Amendment is available upon request. There will be a small copying charge.
A copy of the current Summary Plan Description for the Plan is also available upon request. There is no charge for the Summary Plan Description.