When can I terminate my 401k Plan?

To terminate your 401(k) plan, you must assess the facts and current circumstances of your plan and your business to determine if and when termination may be permissible.

The IRS requires that a 401(k) plan be established with the intent of being permanent as opposed to temporary. This means you should not open a plan if you do not intend to keep it for the foreseeable future. However, a company is not required to provide a retirement benefit and therefore can elect to terminate their 401(k) offering for various reasons. 

According to the IRS, acceptable reasons for terminating a qualified retirement plan may include but are not limited to a change in ownership by merger, reorganization, or a change in the law. In these situations, it’s important to note that you may have other options besides termination. You may wish to freeze your plan or transfer it to another provider,for example, rather than terminate it entirely. However, certain circumstances require plan termination, such as the dissolution of the sponsoring employer or the death or retirement of a sole proprietor. If an entity no longer exists, it can no longer sponsor a plan. 

If your company is undergoing a merger or acquisition, you may have the option to merge, transfer, or spin off all or part of your plan. We recommend consulting an experienced ERISA attorney to advise on your options.

 If you elect to terminate your 401(k) plan, the IRS limits your ability to open a new qualified plan within 12 months of final termination. Please keep this mind if you are considering a plan termination.

 Visit IRS.gov for more information on regulatory requirements and constraints regarding termination of a 401(k) plan. If you need more information about terminating your 401(k) plan, please contact the Account Management team at Guideline. You can also visit our related article regarding the plan termination process and related fees for more information.

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