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How do I shutter my sold company 401K Plan?

I am a trustee of a company 401K Plan. The company has been sold and all 401K accounts have been rolled over to new qualified accounts. All participants were fully vested. The 5500's have been submitted annually and we are up-to-date. I need to shutter the Plan.

Aug 27, 2013 by Thomas from Venice, FL in  |  Flag
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All of the previous answers have been good and very thorough. Following the plan termination process all the way through to completion is very important in order to avoid future complications. In order to offer simple advice and echo comments previously made, this process should be directed by either the plan’s TPA or Bundled Recordkeeper. There may be additional fees associated with the details of this process, but this is part of the responsibility of the organization providing administrative services. This is part of why they have been getting paid. It sounds as though the sale of the company is complete and the assets have been combined with the purchasing company’s plan, the responsibility of servicing firms should not end until all factors related to the final termination are complete. I would suggest contacting those organizations and requesting a list of required actions and a time-line for completion.

Comment   |  Flag   |  Aug 27, 2013 from Uniontown, OH

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Brad Raines Level 15

The first step is to setup a conference call or group email with all of the members involved with your 401k. Your custodian or record keeper (ie American Funds, Fidelity, ING, Vanguard...). Your TPA or Third Party Administrator (sometimes the same as the custodian). Your financial advisor or advisor firm managing the 401k. And your CPA.

The remaining steps go like this: 1. Request that each party lists their termination process and requirements. Primarily applies to the TPA and custodian. 2. Determine your unfunded liability (if any) or how much you still must contribute to the plan before termination. 3. Submit a plan termination notice, signed by the trustee(s), to each party that requires one (generally TPA and Custodian). Some TPA/Custodians require a simple letter of instruction while others have a standardized form. 4. The actual termination date listed on the termination notices should allow for plenty of time to pay the last plan expenses (TPA, custodian, financial advisor..). 45-60 days out is a good minimum. 5. Any outstanding participant loans will be considered taxable (and maybe 10% penalized) if outstanding at the final distribution date, so keep that in mind if applicable. 6. Most plans allow for a reasonable amount of time (12 months) to distribute the assets after the termination date. Distributions of the participants accounts are generally transfers, rollovers, or cash outs. 7. A plan is considered completely terminated when the last distribution check has been cashed/cleared and $0 remain in the plan. Whichever tax year that falls in is the last year you'll need to submit/file a 5500.

I'm in the process of terminating a Defined Benefit/401k/Profit Sharing Plan near Orlando so let me know if you have any additional questions on the process.

Bradley W. Raines brad@appliedcapital.com

Invest With Purpose www.appliedcapital.com

Comment   |  Flag   |  Aug 27, 2013 from Little Rock, AR

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Hi Thomas,

Thank you for posting your question. For the most part I believe you have received some very thoughtful and thorough answers to your question. I would like to provide you with an answer, but before I do I have a few questions that I hope you wouldn't mind answering:

• Was the plan terminated prior to the sale of the company? • Was the sale an asset sale or stock equity sale?
• Were the participants all given the opportunity to take distributions and roll them over to IRAs, keep the distribution, etc… or were they transferred directly to a new qualified retirement plan of the buyer?

Again, thanks for submitting your question. I look forward to receiving your reply via Brightscope or directly to my inbox at: msmith@wcfingroup.com.

Thanks, Martin

3 Comments   |  Flag   |  Aug 27, 2013 from Bethesda, MD

Hi - thanks for responding to my question. The plan is not terminated yet. The company has been sold and it was an asset sale - not a stock sale. We're in the process of rolling over all participant plans - some will go to the new employers plan some to other qualified plans.

Flag |  Aug 27, 2013 near Venice, FL
Martin A. Smith, CRPC®, AIFA®


The plan document needs to be amended to reflect the plan termination and to bring it into compliance with current regulations. The current document provider should probably be able to do this at little or no cost.The participants may need to be given advance notice of the plan termination depending on the type of plan.

Distributions can be made for those participants who have executed their distribution paperwork. Usually for small amounts, under $1,000, distributions can automatically be made to plan participants, but it depends on the language in the plan document. Once the final distributions have been made from the plan and there are no assets left in the plan, a final Form 5500 will need to be prepared and filed prior to the end of the 7th month following the final distribution of assets from the plan. If the plan is a large plan filer, a final audit will generally be required.

Without a copy of the plan document and knowledge of the plan operation and what has transpired, the brief summary provided above represents general steps taken to terminate and close out a retirement plan.

Hope this helps.

Flag |  Aug 29, 2013 near Bethesda, MD

It does - thank you Martin - Tom

Flag |  Aug 29, 2013 near Venice, FL

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Typically, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, and filing a final Form 5500. If you have any employees, they need to be notified of plan termination. Your plan administrator should be doing this as a matter of course.

Although you are not required to, you may file a Form 5310, Application for Determination for Terminating Plan, to ask the IRS to make a determination on the plan's qualification status at the time of plan termination.

You indicated that all assets have been rolled into another qualified plan but i would check with your plan’s financial institution to see what further action is necessary to terminate your 401(k).

Comment   |  Flag   |  Aug 27, 2013 from Delray Beach, FL

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