Saturday, January 10, 2009

Terminating your Retirement Plan upon Business Closure

In this stage – Terminating – business owners go through the often-confusing process of shutting down a retirement plan.

This process includes:
Notifying participants
Notifying appropriate government agencies
Distributing plan assets
… and perhaps choosing a new plan.


Why is the IRS holding the money from my retirement plan now that the plan has terminated?
When a plan has formally terminated and submitted a Form 5310, Application for Determination for Terminating Plan, the Service will review the application in an expedient manner. However, on many occasions there are questions raised which need to be addressed before a favorable letter is issued. Also, the employer or trustee is not required to hold the assets until a favorable determination letter is issued, but usually will do so as a safety feature to ensure that distributions will receive the favorable tax treatment to which qualified plan distributions are entitled.
NOTE: The Service does not maintain or hold the assets during the termination process.

When are assets required to be distributed after a plan has terminated?
Generally, an employer is required to distribute assets from a terminated plan as soon as it is administratively feasible after the date of plan termination.
Whether distributions are made as soon as it is administratively feasible is determined under all the facts and circumstances of a given case, but generally the Internal Revenue Service views this to mean within one year after plan termination (see Rev. Rul. 89-87, 1989-2, C.B.

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