401k Partial Plan Termination
Do you need help with 401k partial plan termination?
If you have recently seen a restructuring in your company’s organization that called for the termination of a number of employees who had 401k plans while they worked for you, then you should know about your obligations to those employees.
There are certain rules and regulations that have been put in place by the IRS as well as the United States Department of Labor (DOL) to help protect the retirement prospects of employees and the money that accumulates in their 401k accounts over the span of time that they work for a particular employer.
Need Retirement Plan Management Help?
Call us today at - 267.607.4169
In return, employers are required to take certain action once those employees are no longer with the company.
This holds true if the employee is dismissed or, in the case of a 401k partial plan termination, there is a major reduction in the workforce. These rules only apply to employer initiated severance.
Before you are made aware of what you, as the business owner, have to do for your former employers, it pays to know more about the circumstances that can bring this kind of situation into being.
What is a Partial Termination of a 401k Plan?
If at least twenty percent of your company’s workforce has lost its 401k coverage, then your company will experience a partial termination of its 401k plan.
There are several events that can lead to this happening:
- If your company has declared bankruptcy then you most likely had to let many of your employees go. This would lead to a significant drop in the number of 401k participants.
- If your company has merged with another, it isn’t uncommon for roles to overlap. Employees are made redundant as a result and would lose their employment as well as the benefits associated with that, like their 401k plan.
- If your company is acquired by another, then you may see a restructuring that includes reduction or outright elimination of certain roles and departments. When this is the case, you will see the loss of a large number of employees. The reduced number may qualify your company for a 401k partial plan termination.
Regardless of the reason for the large reduction in your company’s workforce, the departure of a substantial number of employees does not free you of the responsibility of dealing with the money that they have accrued in their retirement accounts.
Your Obligation to Your Former Employees
If it is determined that recent actions have triggered a partial plan termination, then that means the affected employees, those who have been let go, have become fully vested.
When an employee is fully vested in his or her 401k, they have the absolute right to the full amount of money that you have contributed to their retirement account as well as the money that they contributed themselves.
Normally, an employee isn’t considered to be fully vested until they have been with the company for a certain number of years, but a partial plan termination disregards that and grants the affected employee fully vested status regardless of how long their time with the employer was.
Beyond changing the status of former employees, a 401K partial plan termination can also leave those employees confused as to the status of their retirement plans.
In the mean time, those plans remain open and can cost you money in administrative and account fees that will continue to accumulate until the funds are distributed to the employees entitled to them and the plans are closed.
With your company being in a state of transition and possible restructuring, a 401k partial plan termination introduces another element of operational risk that could impact your efforts negatively if not dealt with as expeditiously and carefully as possible.
That is where RCP Solutions comes in.
Risk Compliance Performance Solutions: Your Partner in Business Assessment
At RCP Solutions, we have over six decades of experience in assisting businesses with our risk management and retirement compliance services.
If you need expert support in sorting through a possible 401k partial plan termination, then you should know that we can help your company through the process so that both you and the employees who are entitled to accumulated funds benefit.
You let us work through the details of the partial plan termination while you focus on guiding your company through restructuring. You can dedicate your resources and energy to mission critical operations while we make sense of terminated 401k distribution as efficiently as possible.
Are you ready to speak with one of our representatives today?
If so, then you can get in touch with us either by clicking here or giving us a call at 267.607.4120. The sooner you contact us, the sooner we can work through the 401k partial plan termination process and help get you back on track.
Go from 401k Partial Plan Termination back to Benefits & Uses
Go back to the RCP Homepage
