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IRS Roadmap for Terminating a Qualified Plan

The IRS has released the Employee Plans Newsletter for August 2014.  The Newsletter summarizes the steps that must be taken in order to terminate a qualified plan and provides links to additional guidance, including materials used by the IRS to review terminating plans.

The Newsletter provides a useful checklist of the tasks for terminating a qualified plan:

  • Amend the plan to establish the termination date, make all changes required by the termination date, cease plan contributions, fully vest the benefits of affected employees and authorize the distribution of benefits.
  • Notify participants and beneficiaries of the termination.
  • Provide rollover notices.
  • Make outstanding employer contributions.
  • Fully vest affected participants.
  • Distribute plan assets.
  • File a final Form 5500.

 

It is also good practice to file a request for the IRS to issue a determination on the plan’s qualified status at termination.  Obtaining a favorable determination letter is not a prerequisite for terminating a qualified plan, but it does provide added assurances that the plan has met all of the necessary requirements for qualification.  In many cases, amendments are required regardless of whether the remedial amendment period remains open as of the date of termination.  Additional information about these amendments is available here.

Retirement Plan Qualification Protection Through Internal Controls and Self-Audits

Retirement Plan Maintenance Helps Reduce Risk of IRS Disqualification

The complex rules governing retirement plans leave plenty of opportunities to make mistakes.  Establishing a routine for “plan maintenance” can help minimize the risk of running afoul of the IRS requirements for plan qualification.  The IRS has provided a helpful roadmap for plan sponsors who want to keep their plans running smoothly. Consider using the IRS roadmap to review the effectiveness of your plan’s operations.

Form 5500: Three Mistakes to Avoid When Filing a Final Form 5500

Form 5500: Final Filing Common Errors

According to the Employee Plans Compliance Unit’s recent study of terminating plans,  90 percent of respondents made at least one error on the final Form 5500 filed on behalf of their plans.  Here are three common mistakes which you can easily avoid:

  • Jumping the gun:  A final Form 5500 may be filed only when all plan assets have been distributed.  If assets remain in the plan at the close of the plan year, you will need to file Form 5500 for the plan year–but it won’t be the final 5500.

 

  • Filing again…and again:  Only one Form 5500 can actually be the final return.  Make sure the 5500 you are filing really is the last one you need to file before marking it as final.

 

  • Ignoring the short plan year rules:  If the plan assets aren’t fully distributed until after the close of the year in which the plan was terminated, then it is likely that the plan will have a short plan year during the year of distribution.  In that case, the final Form 5500 is due by the last day of the seventh month following the close of the short plan year.