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I am working with a single employer pension plan that is looking to terminate their plan. The plan is PBGC covered and will be terminating as part of a standard termination. The plan provides for an annual post-retirement COLA based on CPI and capped at 4.0%. I know that typically a COLA such as this is considered part of the accrued benefit and cannot be amended out. The catch is that the definition of the COLA in the plan document states that the COLA will cease on plan termination. As best I can tell this language has always been in the document and they have received FDLs. I will be pointing them to their attorney for a final opinion, but has anyone come across this? Any thoughts or opinions on whether it is permissible to stop the COLA at plan termination?

I need some clarification. Someone in my organization (that we normally see as the expert) is saying that the rules for successor plans only apply to the business/EIN. In other words, if a company dissolves and opens a new LLC under a different EIN, they are not at risk of violating the successor plan rules. I always thought that these rules also applied to ownership. Our director is saying that they don't. I thought the purpose of the successor plan rule was to prevent employers from cycling through retirement plans so they can't simply have a distributable event and then open another plan. I would think this applies to ownership as well, because what's to stop an owner from dissolving and creating new companies to terminate/start up a new plan? Do you have any feedback? Is this person at my company correct? I don't want to dismiss the possibility that I might be mistaken, but I could really use a source that specifically mentions that the owner is exempt from this rule as long as the other company closes and the new plan is with a new company and EIN. All I can find uses the word "employer," and that seems vague in this particular instance. Again whether I am right or they are right, a source would really be appreciated. Thank you!

Hi everyone, We are currently working on ways to prevent unnecessary churn with our clients and one of the things we were looking at was making clients aware of the IRS Plan Permanency Rule that essentially states a plan must be established with the intent to be permanent,and if it is terminated within a few years, besides any of the approved reasons by the IRS, then they are at risk of violating that rule which could potentially lead to retroactively being disqualified. My questions are: 1. Is this really something the IRS even checks? In my six years in the industry, which granted isn't a ton of time, this is something I previously never heard of before and I don't believe it's ever been communicated to any of my previous company's clients when they requested a termination. Are that many people just not aware of it? 2. One of the approved termination reasons is a change in ownership. Does simply selling your business fall under that category? 3. Lastly, is the 5310 form actually required or is that only if they essentially want the IRS's blessing that the termination reason is qualified? The goal is ultimately to make them aware of this rule in the hopes they might delay the termination of the plan, and although it might not save a ton of business, I think it could definitely deter clients from terminating for reasons like " I just don't want one anymore" , or "my wife and I are going to rollover to an IRA (not Simple) and the employees will figure something else out" Any feedback is much appreciated!

If a plan terminates, and the plan had heretofore stipulated a concluding day of the plan year condition for eligibility for an allocation, and the effective date of the plan termination occurs prior to the hitherto calibrated end of the plan year, prima facie the last day of plan year employment eligibility condition resynchronizes to the effective date of plan termination. Please provide guidance on this situation.

We have a cash balance plan that set a termination date in September this year. We permissively aggregate the DB and DC plan each year to pass general testing. Does the plan termination date create a short plan year for the DB plan and does that now make the two plans unable to be aggregated due to differing plan years or is amending the plan to terminate 9/30/2023 not creating a short plan year for testing purposes? No assets will be distributed this year and both plans define the limitation year as the plan year. I don’t believe the regs are concrete on this scenario and that it could be interpreted as being a short plan year. But it could also be interpreted as being a short plan year only during the year when the assets are distributed not necessarily when the plan term date is effective. Secondly If the DC plan is terminated 9/30 as well, I’m thinking it would be reasonable to aggregate them under this scenario? Thank you!

My client (company A) acquired a company (company B) in 2021. 2022 was the final year of B's 401(k). Since it was a SH plan with a generous plan design, ERISA counsel told us we could not merge the plan until end of year, 2022. Totally fine. Blackout started for participants on 12/28/2022 and the final asset transfer happened on 01/05/2023. Are we able to file the 2022 5500 as the final 5500 and mark that all assets have been transferred?

Hi to All, We have a client who sold his business and ceased making payroll as of 10/06/2020. He let us know that we needed to terminate his (calendar year) 401(k) plan and we made the termination date of the plan 10/06/2020, which means we had to prorate the 415 limit and thus the client will not get to put in the full amount for himself that he would have had if the plan had run up until 12/31/2020. He is not happy with us and feels like his limitations are our fault. Did we make a mistake in terminating the plan to coincide with the business being sold and ceasing to make payroll? We have never done it any other way, but then we've never had a complaint before. Could the plan have run through 12/31/2020? Thank you in advance for your ideas.

Hi! First-time poster, ERISA-newbie here. Here's the situation: Parent Non-Profit Company sponsors a 403(b) plan and Subsidiary For-Profit Company sponsors a 401(k) plan. The company wants to transfer a group of employees from the Subsidiary to the Parent (i.e., within the same controlled group). My question is this: What are the options for transferring assets from the 401(k) plan to the 403(b) plan? I realize that the IRS generally does not allow mergers or transfers of assets between 401(k) and 403(b) plans. I also conclude that transferring employees to the Parent would not automatically create a distributable event in order to rollover assets from the 401(k) to the 403(b) plan, as they are transferring employment to a member within the same controlled group. Thus, there is no severance of employment that would allow for the distribution. I'm exploring other options, including a complete termination of the 401(k) plan, but I'm having trouble finding a viable solution. Any ideas?

A 401k plan is on a calendar year and ceases contributions in March. However, the effective date of the termination is in July. Which date is used to determine the prorated 415 limit? If the employer had already ceased contributions with the intention to terminate, but did not make the effective date until several months after, aren't they essentially increasing the contributions allowed by the prorated 415 limit? Any guidance is appreciated!

Hi to All, BACKGROUND: I have a very difficult client who is already perturbed with me because we can't process her RMD for free, we can't give it to her in quarterly installments, and we can't endorse a rollover of all her assets into her IRA and THEN taking her RMD. All of my research indicates that she must take the RMD first and then roll the remainder from the 401(k) to the IRA. She is terminating her plan effective 05/31/2019; her date of birth is 08/26/1948; she turned 70.5 on 02/26/2019. QUESTION: Her RMD is a bit over $31,000. She has called several times insisting that when it is processed, her broker will send $10,000 straight to the United Way, tax free, and the remainder which is of course taxable, will go to her. Now that I go to actually research and try to accommodate her wishes, I am finding that this is not permissible. According to my research, she could have done this out of an IRA, but not out of a 401(k). Do any of you know any way that she can somehow avoid taxation on the portion she wants to donate to charity? Can she recoup it somehow when her 2019 personal taxes get prepared next spring? Thank you for any observations or advice.

This question relates to terminating a vanilla C-Corp employee stock bonus plan ("ESBP" not and ESOP) that is almost entirely invested in closely held employer stock. A 5310 application has been pending with the IRS since Sept. The company wants to give the participants the choice they have had in the past (as called for under the plan) of taking their plan termination distributions in cash or in stock. The Company would like to redeem shares from the Plan to raise whatever cash is needed to meet the participant elections. There are non-employee shareholders, so can't compel sale of the stock. Are they required to not only get an independent valuation but also to appoint an independent trustee to negotiate the redemption price and make a good faith determination that the plan is being treated fairly and receiving "adequate consideration" (not less than fair market value) for its shares? Is this to be AS OF THE DATE OF THE REDEMPTION SALE? If so CAN THE REDEMPTION SALE TAKE PLACE BEFORE THE DATE OF DISTRIBUTION? What are the mechanics of doing that? Can the participants make their election now but advise them if they elect cash their shares will be redeemed at the fair market value of the stock on the date of actual share redemption as determined by the independent trustee and an independent valuation?

I’m looking for some thoughts/assistance on a somewhat unusual situation I’ve come across: Situation: Small Medical Practice Non-PBGC Plan Term with Asset Surplus. As of DOPT just the owner/participant had an accrued benefit. They also have 7 non-excludable employees that have been excluded from benefiting in the plan. Not as familiar with Non-PBGC Plan Terms and I’m trying to re-allocate the excess in a non-discriminatory manner. Benefits and Participation frozen on 4/30/12; Amended excess assets to be re-allocated to participants eff 8/30/17; Non-PBGC Plan Termination eff 8/31/17. The document is a prototype with standard language on excess assets if a plan is not covered by the PBGC. States “…if elected in the Adoption Agreement, excess assets shall be reallocated to the Participants on the basis of their Present Value of Accrued Benefit…” To allocate the excess, I used a safe harbor formula covering the owner and three other employees. (Three of the non-excludable, excluded employees) I came up with .62% x HI3 Comp resulting in accruals that produce a large enough total in PVABs for all four participants to cover the Excess Assets. (Still have four excluded employees) Note that 415 is not an issue for the owner. So, the excess ends up being allocated on a pro-rata on the PV of that .62% x Hi3. Thoughts on this excess allocation method? This formula satisfies 401(a)(26) and is a safe harbor formula satisfying 401(a)(4)/410(b). The plan was frozen and met top-heavy requirements before and after the freeze. Granted this accrual can be considered anew allocation. Thoughts on T-H requirements? On a side note, Rev. Rul. 80-229, Paragraph 2 of SEC. 3. ASSETS NOT LESS THAN PRESENT VALUE OF ACCRUED BENEFIT states: “If the assets as of the date of termination exceed the present value of the accrued benefits (whether or not nonforfeitable) as of such date, the plan will not be considered discriminatory if such excess reverts to the employer or is applied to increase benefits in a nondiscriminatory manner. One method of applying the assets to increase benefits in a non-discriminatory manner is to amend the plan to provide a new benefit structure such that (1) the benefit structure would not be discriminatory if the plan were not terminated and (2) the present value of the revised accrued benefits (whether or not nonforfeitable) as of the date of termination equals the value of plan assets, and to distribute assets equal to the present value of the revised accrued benefits. The new benefit structure must satisfy other requirements of the law such as sections 411(d)(6) and 415 of the Code.” I would think an amendment explaining how the excess is allocated, along with the formula, and included participants would work in this situation. Thoughts? Thanks in advance for reading through this whole thing. --Jeff

A new client has terminated and distributed the assets in a previous 401k plan. Does the 12 month rule begin once the assets have been distributed or once the final 5500 is filed?

Hi folks, I've been reading these boards for a while, but this is my first post. Client has a DB plan (professional 100% owner and one other employee, not subject to PBGC). The owner reached age 70.5 in 2016 and received his first RMD in 2017 slightly before the required beginning date of April 1. The payment was a year's worth of accrued benefit (normal DB RMD paid annually). Per 1.401(a)(9)-6, A-1(c)(1), if the plan was ongoing, his next annual distribution should be made around that same date in 2018. However, he terminated the plan in 2017 and is an electing a lump sum at plan termination. Since it is the year of termination, I believe he can take his 2017 RMD via the account balance method using his lump sum as the balance. His employee only recently received her distribution materials and may not have made her payment election before the end of 2017, so we don't know the cost to the plan for her benefit yet (could be her calculated lump sum or an annuity contract purchase at an as-yet unknown price). Barring a large gain in plan assets at the last minute, the plan will not have enough assets to pay the owner's full lump sum, so he will forego some of it to the extent necessary. He does not want to make an additional contribution to allow the plan to pay his full amount. Therefore, we likely will not be able to calculate his RMD before the end of 2017 since the "account balance" is not yet known. Question: Does the fact that we are using the account balance method for the 2017 RMD shift the payment due date to the end of 2017, or would it still be considered timely if he takes it by March of 2018 (one year after the first annual RMD was paid)? We're aware that the RMD should be excluded from any rollover to an IRA.

Client wishes to terminate their prevailing wage only plan and allow immediate distributions to everyone (roll, cash, etc.) but amend their 401(k) to permit prevailing wage contributions going forward. Any problems with this?

I thought it was prudent but not required to provide participants of notice the plan was terminating. However, today I found the following on the IRS website. Did I miss a change? https://www.irs.gov/retirement-plans/retirement-plan-participant-notices-when-a-plan-is-to-be-terminated Page last reviewed/updated August 3, 2017. When a plan is to be terminated, participants should receive a written notice of the company’s intention to terminate the plan and a notice of plan benefits. See Terminating a Retirement Plan. Notice of intent to terminate the plan Description: Written notification that the plan sponsor intends to terminate the plan or cease benefit accruals. What it should contain: The notice should contain sufficient information to notify the participant of the termination of the plan. The notice might include identifying information such as: the plan name and number; the proposed termination date; a statement concerning the cessation of accruals (benefit accruals are ceasing); and a statement that there are sufficient plan assets to meet the accruals provided under the plan. Timing: The notice must be provided to all affected plan participants and/or beneficiaries at least 60 days and no more than 90 days before the proposed date of termination. Who is responsible for sending it: The administrator of the plan. Notice of benefits upon termination of the plan Description: A notice to each affected participant or beneficiary that specifies the amount of the participant’s benefit as of the proposed termination date. What it should contain: The notice should identify the amount and form of each participant’s benefit including any personal data used in determining the amount of the benefit, including lump sum conversions, mortality and interest rates used to compute the benefit. Timing: Promptly to any affected participant or beneficiary after the proposed termination date and on or before the distribution date. Who is responsible for sending it: The administrator of the plan.

We have a terminating plan with one deceased participant. There is a valid beneficiary designation naming the spouse. The account balance is in the 5 figure range. The spouse is not responding to requests for distribution instructions. The plan requires full distribution within 5 years of the death. I'm checking to see if the 2006 termination date in our files is the date of death, or if he actually terminated and passed at a later date. The record keeper claims that IRS regulations prohibit forcing out the account of a death beneficiary and the plan must stay open until she eventually decides to withdraw the balance. I've never heard of such a rule. Is that correct?

Company had a minority ESOP that they terminated over 2 years ago when new management came in to turn around the company. They now want to start a new ESOP and sell 100% to the employees. Can this be done? Any successor plan rules to be concerned about (they seem to really apply to 401k plans). Thanks.

If a defined benefit plan is terminating and it has an Early Retirement Age of a certain age plus a number of years, do they have to continue to count years of service after the termination date to determine when someone is eligible for an early retirement benefit?

I am in the process of terminating a non-PBGC defined benefit plan in which the assets are less the present value of the accrued benefits. Since the plan is not PBGC covered, I want to pay out benefits "to the extent funded"; that is, to have all participants share in the asset shortfall rather than having the owners waive/forego receipt of benefits. Mike Preston has been telling us for years that this is acceptable in a non-PBGC plan but I have questions about the logistics: Does the plan sponsor have to make some election/statement re this methodology? What do I put on the participant benefit statements since participants are 100% vested in the full AB by formula but will only receive some % of that benefit (for sake of argument we can call it 90%)? Anything else I need to consider? FYI - client is not going to file for an IRS determination letter.

I have a 3% nonelective safe harbor 401(k) Plan that is terminating effective 10/31/2016. The safe harbor is to be calculated based upon compensation from January - October. This is due to a business acquisition, so safe harbor status is maintained. There is one owner who receives Schedule C income. Safe Harbor has been deposited for the 3 non-owner employees throughout the year. The owner has taken $10,000 distributions periodically and the bookkeeper has made 3% safe harbor deposits based upon these amounts to the owner's account. The owner's actual earned income for the year will not be determined until sometime in the first quarter of 2017, but we would like to have all assets paid by 12/31/2016 to prevent another plan year. So...how do I calculate the owner's safe harbor contribution from 1/1/2016 through 10/31/2016? 1) Treat him as having earned $0. This would be a problem because, not only did he have safe harbor deposits, but he also deferred during the year. 2) Have the CPA estimate his earned income from 1/1/2016 through 10/31/2016 and calculate the safe harbor for the owner based upon this estimate. Any other options? Has anyone dealt with this conundrum? Thank you!

401(k) plan terminating 12/31/16. They have a Volume submitter document based on 2010 Cumulative list. We will update for everything on 2015 cumulative list, but of course there will be no 2016 Cumulative list. Can anyone think of amendments that might be required as of Termination Date that are not on the 2015 list? Thanks.

Short well maybe long story. Company A had a plan in which they terminated less than 12 months ago and became an adopting ER of Company B (option of merger was not address w/prior service provider). Company B was recently acquired by Company C (unrelated) (believe a stock sale, but not sure). Company A is no longer part of the control group and would now like to establish a new plan. I do not know for sure if Company B is terminating their plan, let's say they are for this example. Since Company A had terminated a plan less than 12 months ago, they cannot establish a new plan without violating the Successor Plan Rules. So, is their only option a Spin-off from Company B's plan to a new plan? In order not to violate the Successor Plan Rules. What if Company A received advice that they can establish a new plan and the IRS comes in after seeing their Form 5500 and says they did violate the Successor Plan Rules; what then? Is the only option Audit Cap to plead their case and correct however the IRS says in order to keep the qualified tax status of the plan? What if Company A decides to do a Spin-off from Company B's plan, but since time has passed on their decision making and some employees of Company A were already paid out by the current service provider as part of the plan term? Can a Spin-off still be done? Thank you!

Plan will be terminated . Plan subject to PBGC Plan valuation AFTAP is greater then 100%. Plan assets less than total termination benefits Owner want to waive part of his benefits rather than make additional contribution. Does this plan qualifies for a standard termination filing? Thank you for your help.

I'm reposting a question posted a few years ago - because the same issue has now arisen for one of my clients: Company A participates in a multiple employer plan. Company A will be merged into unrelated Company B, and its employees will participate in Company B's 401(k) plan after the merger date. If Company A withdraws from the multiple employer plan on the day prior to the merger, will that be considered a "plan termination" so that its employees can receive distributions from the multiple employer plan under the "plan termination" exception of 401(k)(10)? Would Company A have to do the following to effect the plan termination: (i) withdraw from the multiple employer plan and spin off the assets in a new plan established for this purpose and then (ii) terminate that newly established plan and distribute the money to participants. Does this violate the permanency requirement? Any qualification concerns about eventually rolling over the account balances from Company A's plan into the acquiring company's plan? Any insight would be appreciated.