This post is meant for retirement plan administrators looking for information on qualified 401k plan termination. Specifically, it will detail the notice of plan termination that must be delivered to participants and provide a blueprint 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.
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 401k plan termination are low enrollment, failed nondiscrimination testing, an international relocation, lack of monetary resources, or a merger.
These are the three stages of the termination process:
- Terminating Qualified Plans
- Contacting Residual Plan Participants
- Distributing Assets
This article will focus on the second stage which includes mailing notice of plan termination letters. Here is the checklist for effective participant communication:
□ Send Certified Mail
□ Contact by Phone
□ Check Related Plan Records
□ Contact Designated Plan Beneficiary
Sending Certified Mail
The first course of action to take when contacting plan participants over the span of a 401k 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.
This is the cheapest method of notifying plan participants of 401(k) plan termination. It also helps to identify which of the plan participants have remained at the address that they had initially reported upon hire. Since addresses aren’t always up to date and even people with large balances fail to respond sometimes, phone contact may be required.
Contact by Phone
After a certified mailer has been sent to each of the plan participants, phone contact is often required to complete the process. This is costly since it requires paying the hourly wages necessary to talk participants through the procedure.
It is best to take a proactive approach towards 401k plan termination, calling those missing participants directly, in addition to making a representative available to handle callers with questions and concerns.
Check Related Plan Records
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. Great places to gather this information from are payroll, life insurance policy records and medical system accounts. It is also recommended that you think about letter-forwarding services, internet searches, and credit reporting agencies.
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 401k plan termination process. Additionally, there are circumstances that may require a more tailored strategy.
Our checklist should serve as a guide, but it is never a bad idea to consult an expert for extra help. Our experienced team can assist you with any detailed questions you may still have. RCP Solutions are available online through the contact form to the left or over the phone at 267-607-4120.
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