Plan Termination

[Guest cosmo01]

We have a client that shut its doors in October of last year. We are in the process of filing a Form 5310. For Line 7a purposes is hte proposed date of plan termination the date the doors shut? Or can we set a date as the plan termination date? Additionally, for the IRS submission, we need a copy of all actions taken to terminate the plan. Do we need to draft resolutions to formally terminate the plan as of the date we set? I am just not certain how to handle this. Any directions would be appreciated.

[david rigby]

Many plan documents include a statement that automatically triggers plan termination upon the occurrence of certain events, such as dissolution, bankrupctcy, etc. If your document has similar language, that may help identify an appropriate date.

If there is a legal advisor, get him/her involved in the question.

[RTK]

Look at the termination section of the document. It should specify the method for plan termination. Resolution being the most common method. Quite frankly, I think that automatic termination provisions can present problems by providing for plan termination (and the resulting vesting and distributions) when not really intended or wanted.

Assuming that the plan has not already been automatically terminated, I believe that plans generally cannot be terminated retroactively, arguing then for a current or prospective termination date .

Note that plan termination raises vesting and distribution issues. Upon termination effected employees are generally required to be vested (to the extent of funding). However, the same thing is true for a partial termination, which the employer's shut down likely triggered. Also, plan termination is an event for distribution, which is not necessarily the case for a partial termination or shut down.