Terminating a 401(k) plan can be a complicated process. But rest assured, Guideline will guide you every step of the way, so the plan termination is conducted in compliance with IRS regulations and completed successfully.
Before you move forward with terminating your plan, you’ll want to confirm you’re eligible to do so. You can find details about when a plan termination is permissible here.
Once a termination request is submitted, a plan termination task will appear in the plan trustee’s dashboard, which asks a series of questions regarding why and when you have decided to terminate the plan. The trustee will also be required to sign and date a plan termination resolution and plan termination amendment. Kindly note that only the trustee can complete the plan termination task. If necessary, you can find information about changing your plan’s trustee here.
The plan will remain active until all the required documents are completed and approved.
The termination process
Once we have received all signed documentation, our team will get started on the termination process as outlined below. The time to complete these steps is approximately 90 days. However, uncommon issues and failure to address tasks in a timely manner can greatly extend this time frame.
Participant notification of the plan’s termination: Guideline will provide all participants with a plan termination notice that includes instructions on how to request a distribution of their assets. Throughout the process, Guideline will send 2 more plan termination notice reminders. Learn more about how participants are notified here.
Required plan compliance testing and final account review: Any required non-discrimination testing as required by the IRS will be completed and a final account review will be conducted to ensure all outstanding issues have been addressed.
Process participant distributions: Once the account review has been completed, our team will process participant distributions as they are requested.
Final distribution and close the 401(k) trust: To process the final distributions, we will transfer any remaining funds from participants who did not respond to our distribution requests to PenChecks. Please ensure any tasks requesting missing participant information are handled as quickly as possible so all account balances can be distributed.
Final Form 5500 filing: Guideline will prepare and file the final Form 5500. This must be filed no later than 7 months after the trust account has been fully liquidated and cannot be filed before full liquidation. Your plan will be considered terminated as of the liquidation date, regardless of when the final Form 5500 is filed.
What to do to prevent delays in the termination process
To help the termination process stay on track, please keep on eye on the following within your Guideline dashboard:
Pending tasks or notifications
It is important to stay up to date with all pending tasks and notifications and complete them as they are received. For instance, there may be tasks related to missing company or compensation information needed for compliance testing purposes.
Billing
Please keep in mind that billing for monthly service fees will continue for up to 3 months from either the termination date or date of submission, whichever is later. However, billing will not continue past the service end date. You can learn more about how billing works for terminating plans here.
Any outstanding invoices can hold up the plan termination process and prevent Guideline from closing the trust account. Therefore, you’ll want to confirm that a valid and active bank account remains connected to the plan. Should you need to update your banking information, you can do so within the Settings section of your dashboard.