Hi everyone,
We are currently working on ways to prevent unnecessary churn with our clients and one of the things we were looking at was making clients aware of the IRS Plan Permanency Rule that essentially states a plan must be established with the intent to be permanent,and if it is terminated within a few years, besides any of the approved reasons by the IRS, then they are at risk of violating that rule which could potentially lead to retroactively being disqualified. My questions are:
1. Is this really something the IRS even checks? In my six years in the industry, which granted isn't a ton of time, this is something I previously never heard of before and I don't believe it's ever been communicated to any of my previous company's clients when they requested a termination. Are that many people just not aware of it?
2. One of the approved termination reasons is a change in ownership. Does simply selling your business fall under that category?
3. Lastly, is the 5310 form actually required or is that only if they essentially want the IRS's blessing that the termination reason is qualified?
The goal is ultimately to make them aware of this rule in the hopes they might delay the termination of the plan, and although it might not save a ton of business, I think it could definitely deter clients from terminating for reasons like " I just don't want one anymore" , or "my wife and I are going to rollover to an IRA (not Simple) and the employees will figure something else out"
Any feedback is much appreciated!