Terminating 401(k) Plan - Notices

[drakecohen]

Company A  with a 401(k) plan with a nondiscretionary SH is being acquired in a stock sale this coming week by company B which wants A to terminate their 401(k) plan B's lawyer insists that the plan can be terminated right away before the sale date but according to this IRS webpage on Participant Notices:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-notices

 

There is this that says 60 to 90 days notice of plan termination is required:

 

Notice that the employer is terminating the plan

When a plan is to be terminated, participants should receive a written notice of the company's intention to terminate the plan and a notice of plan benefits. See Terminating a Retirement Plan.

Notice of intent to terminate: The Notice of Intent to Terminate should contain sufficient information to notify the participant of the termination of the plan. The notice might include identifying information such as:

• the plan name and number;
• the proposed termination date;
• a statement concerning the cessation of accruals (benefit accruals are ceasing); and
• a statement that there are sufficient plan assets to meet the accruals provided under the plan.

The notice must be provided to all affected plan participants and/or beneficiaries at least 60 days and no more than 90 days before the proposed date of termination.

I have had another situation where an actuary for a DB plan not covered by the PBGC and where benefit accruals had already been frozen did a retroactive termination (ie. doing the termination paperwork in February, 2023 with a date of termination of June 30, 2022) believing that the 60-90 day notice rule only applied to PBGC-covered plans since that was in the PBGCs website instructions for terminating a DB plan. Their argument was that since the DB plan here was not subject to PBGC coverage it was not subject to the 60-90 notice requirement.

[Bill Presson]

When a plan is being terminated due to a sale, there is no requirement for a 30 day notice. I'm pretty sure it's covered in 1.401(k)-3(e)(4) but didn't have time to look and make sure that's the right cite. But it's for a 410(b)(6)(c) transaction.

[EBECatty]

Per Bill's response, 1.401(k)-3(e)(4)(i) requires, among other things, advance notice when terminating a safe-harbor plan mid-year. Note that this is purely a safe-harbor rule that must be met in order to retain the safe harbor during the short plan year in which the plan terminates; it's not an across-the-board 401(k) rule.

Conversely, 1.401(k)-3(e)(4)(ii) allows a safe-harbor plan to be terminated mid-year in connection with a corporate transaction without adding the notice rule. It doesn't say that notice doesn't have to be provided; it just says the plan can be terminated mid-year (keeping the safe harbor) in connection with a corporate transaction. 

The notice of intent to terminate rules copied above address DB plans, but the IRS website doesn't seem to get into that level of detail. 

[C. B. Zeller]

The requirement for the 60-day notice of intent to terminate is found under ERISA sec. 4041(a)(2). This section only applies to plans subject to Title IV, in other words, PBGC-covered DB plans.

 

[Lou S.]

On 11/11/2023 at 5:49 AM, drakecohen said:

 

I have had another situation where an actuary for a DB plan not covered by the PBGC and where benefit accruals had already been frozen did a retroactive termination (ie. doing the termination paperwork in February, 2023 with a date of termination of June 30, 2022) believing that the 60-90 day notice rule only applied to PBGC-covered plans since that was in the PBGCs website instructions for terminating a DB plan. Their argument was that since the DB plan here was not subject to PBGC coverage it was not subject to the 60-90 notice requirement.

While the 60-90 day advanced notice of intent to terminate is not required for non-PBGC plan, I'm unaware of any circumstances where you can retroactively terminate any ERISA covered retirement plan.  That is the termination date has to at least be concurrent with or after the signing the of the amendment terminating the plan. In some cases advanced notice to participants under ERISA 204(h) may be applicable to certain plans.