On November 30, 2020, Lisa Tavares was quoted in PlanSponsor on the many details to attend to when terminating a defined contribution (DC) retirement plan.
According to the article, it’s possible that more retirement plans could be terminated this year as a result of the economic impact of COVID-19 and business closures. Before terminating a DC plan, plan sponsors should make plan amendments for all law changes as of the date of termination, says Tavares. “There will likely be an accelerated amendment deadline from the IRS extended amendment deadlines,” she says.
Plan sponsors may make a general amendment regarding the plan termination, but many plans only require the adoption of a resolution terminating the plan, Tavares says. “Plan sponsors should adopt a resolution to terminate the plan on a specific date, discontinue contributions, vest all participants 100% and distribute all assets as soon as administratively feasible,” she says. “They should provide the recordkeeper and/or third-party administrator [TPA] with a copy of the adopted resolution terminating the plan.”
Plan sponsors need to have all assets distributed within one year of the plan termination, Tavares says. “They need to start this process right away in order to get notices out and provide the opportunity for multiple mailings to nonresponsive participants in order to get all money out in one year,” she says.
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