Identify an Appropriate Date to Terminate the Plan
Timing considerations should be explored based upon the particular factual situation. Tax and practical considerations need to be analyzed.
Adopt a Resolution to Terminate the Plan and to Freeze the Plan Accruals as of the Termination Date
Timely drafting of the appropriate plan amendment and corporate resolutions to legally implement the termination are required.
Provide Notice to the Participants
Notice should be given to participants on a timely basis. The notices must comy with IRS and Department of Labor (DOL) rules and regulations.
Amend the Plan to Insure It Reflects All Tax Law Changes to the Date of Termination
Generally the plan must be amended for the various applicable tax acts before the plan can be terminated. This comes as a surprise to many owners who have a plan that they want to terminate. Plans must be amended for GUST, EGTRRA, Pension Protection Act of 2006 (PPA), Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act); and the Worker, Retiree, and Employer Recovery Act of 2008 (PPA Technical Corrections Act), etc.
Adopt an Amendment Freezing the Money Purchase Pension Plan Contribution Formula
Draft the proper documentation to effectuate freeze. Timing is imperative here to avoid a mandatory contribution in the year of termination.
Provide an Interested Party Notice, if Filing a Form 5310
Prepare the required forms for this purpose in accordance with IRS and DOL rules.
File a Form 5310 (Optional, But Highly Recommended)
Prudence would dictate filing this Form 5310 in most plan terminations.
Provide Participants With Necessary Distribution Forms
Provide participants with items such as the 402(f) notice, joint and survivor annuity explanation/waiver, distribution election form and related instrctions and filing forms.
Purchase Annuities for Participants Who Do Not Consent To Single Sum Distribution
The IRS and DOL rules often require this purchase of annuities in certain cases.
Distribute To Plan Participants
To avoid complications, such distributions should be done as soon as possible and in a fashion to avoid having to file additional Form 5500s.
File Final Form 5500
This Form 5500 needs to be filed so long as a plan has assets, so due care should be taken in the transfer of assets from the money purchase pension and filing of this final Form 5500.
Warning
The above is merely an overview and each of these steps require attention to their detailed requirements. If you need assistance please do not hesitate to contact us.
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Fred Marshall, February 27, 2009: "Steve is an excellent corporate attorney who has a deep understanding of corporate law, taxes and estate planning. He’s been extremely helpful to me in keeping my many companies and business ventures organized, focused and squeaky clean. He’s very strong in estate planning and wealth preservation as well. Finally, his follow through is air tight and utterly dependable.”
