What happens if I fail to inform Guideline of a potential partial plan termination?

Information on your Form 5500 Annual Report that shows a significant reduction in the number of plan participants may alert the IRS of a potential partial plan termination, which may trigger an audit of your plan. If audited before you voluntarily vest impacted participants, the IRS may impose penalties and sanctions.

Additionally, in severe cases, you could risk disqualification of your plan, which would result in the plan’s trust being taxed on all of its earnings due to loss of tax exemption. In this instance, plan benefits would be included in participants' incomes and the company would also lose employer tax deductions for all plan contributions.

Was this article helpful?
Have more questions? Submit a request