This post is meant for retirement plan administrators looking for information on qualified 401(k) plan termination. Specifically, it will outline the notice of plan termination that must be delivered to participants and provide an overview for effective plan closure.
We’ll go over the basic process, but keep in mind, each situation is unique. If you have any lingering questions, we’re here to help. Contact RCP Solutions online by completing the contact form to the left or call and speak with a specialist at 267-607-4120.
Intro To The 401k Plan Termination Process
401(k) plan termination can be a costly process if executed in an untimely manner. It is also critical to remain compliant with the many requirements of the Employee Retirement Income Security Act (ERISA) of 1974 and to properly follow regulatory guidelines.
Every penny must be distributed before a plan is closed, so it is essential to complete the task of participant outreach as quickly as possible in order to stop the accrual of annual fees which apply to a 401(k) plan.
Some instances that may require 401(k) plan termination are a lack of monetary resources, or a merger or acquisition.
This article focuses on – contacting residual plan participants – which includes mailing notice of plan termination letters.
Outreach to Participants
The first course of action to take when contacting plan participants over the span of a 401(k) plan termination is to distribute a comprehensive packet that includes notice of plan termination letters. Also included in the packet should be the plan termination date, the blackout period during which the participant is not allowed to modify the account, and a request for desired asset distribution.
Mailing plan termination details also helps to identify which of the plan participants have remained at the address that they had initially reported upon hire or have moved without updating their contact information. Since addresses aren’t always up to date and even people with large balances fail to respond sometimes, phone contact may be required.
After a mailing, it is best to take a proactive approach towards 401(k) plan termination, calling those missing participants directly, in addition to making a representative available to handle callers with questions and concerns. Phone contact is often required to complete the process and can be costly.
Bad Address Updates
Just because the 401(k) account lacks an updated address doesn’t mean that the information you need in order to touch base with participants isn’t out there somewhere. There are plenty of great resources to gather updated address information; however, some are more accessible than others. With the increase in efforts to protect against identity theft, certain resources may require licensing or other fees to access their data – only after a legitimate business need is proven.
Contact Designated Plan Beneficiary
Plan sponsors are required by the Department of Labor to contact the beneficiary in an attempt to have them pass the information on to the plan participant.
Does this sound like a lot of work?
Quite frankly, it is. Lack of meticulous record keeping over the lifetime of a company can add even more headache to the 401(k) plan termination process. Additionally, there are circumstances that may require a more tailored strategy.
Our experienced team can assist you with any detailed questions you have. RCP Solutions is available online through the contact form to the left or over the phone at 267-607-4120.
Contact us to learn more about 401(k) plan termination
Go back to the main RCP Solutions blog