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Plan Termination notice


PS

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Hi, 

When a 401k Plan terminates, the plan sponsor is bound to send Plan termination notice to participant, beneficiaries and retired etc.  Should this notice be sent only via a certified mail or can they use digital platform like e-mail/online to send this notice instead of certified mail?

Thank you!

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Perhaps these two rules might help you answer some aspects of your question.

Interpreting the Employee Retirement Income Security Act of 1974’s title I:

29 C.F.R. § 2520.104b-31 https://www.ecfr.gov/current/title-29/part-2520/section-2520.104b-31#p-2520.104b-31(a);

Interpreting the Internal Revenue Code of 1986:

26 C.F.R. § 1.401(a)-21 https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-21#p-1.401(a)-21(a).

These rules set conditions for using electronic communications to meet some notice requirements.

But a communication that meets these rules might not be enough for a communication about a plan’s end and final distribution.

Among other points, a plan’s fiduciary might evaluate risks that some participants, beneficiaries, or alternate payees might fail to read an electronic communication.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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Even if no other notice is mandated or chosen in the fiduciary’s prudence, an individual-account retirement plan’s discontinuance and later termination usually results in a final distribution, which typically is an involuntary distribution and is an eligible rollover distribution. Some retirement-services people use “plan-termination notice” to describe a notice about those points.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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On 11/28/2023 at 9:08 AM, Peter Gulia said:

Perhaps these two rules might help you answer some aspects of your question.

Interpreting the Employee Retirement Income Security Act of 1974’s title I:

29 C.F.R. § 2520.104b-31 https://www.ecfr.gov/current/title-29/part-2520/section-2520.104b-31#p-2520.104b-31(a);

Interpreting the Internal Revenue Code of 1986:

26 C.F.R. § 1.401(a)-21 https://www.ecfr.gov/current/title-26/part-1/section-1.401(a)-21#p-1.401(a)-21(a).

These rules set conditions for using electronic communications to meet some notice requirements.

But a communication that meets these rules might not be enough for a communication about a plan’s end and final distribution.

Among other points, a plan’s fiduciary might evaluate risks that some participants, beneficiaries, or alternate payees might fail to read an electronic communication.

Thank you!

 

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On 11/29/2023 at 2:48 PM, TPABob said:

Electronic delivery question aside, it's my understanding that a plan termination notice for a non-pension plan is not required. That being said, you'd want to let active participants know that deferrals/contributions to the plan will cease, as a courtesy. Is that not correct?

part of the communication does talk about contribution will cease, it also talks about participants to take distribution.  My understanding was a 30 days notice should be given before particiapnts are forced out if failed to take any action on their account balance. 

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3 hours ago, PS said:

part of the communication does talk about contribution will cease, it also talks about participants to take distribution.  My understanding was a 30 days notice should be given before particiapnts are forced out if failed to take any action on their account balance. 

You have to give the Special Tax Notice for distributions eligible for rollover no less than 30 days and not more than 90 days before a distribution. Participants can waive the 30 day period in writing and get a distribution earlier but you're not supposed to force them out without the waiting period. Maybe that's what your thinking of?

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14 hours ago, Lou S. said:

You have to give the Special Tax Notice for distributions eligible for rollover no less than 30 days and not more than 90 days before a distribution. Participants can waive the 30 day period in writing and get a distribution earlier but you're not supposed to force them out without the waiting period. Maybe that's what your thinking of?

the notice is sent 45-60 days before the force out date.  What I understand is for 401k terminating plans the two important notification is the notice deferral cease and special tax notice can this be a digital notice or should it be mail only. 

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  • 1 month later...
On 12/1/2023 at 1:31 PM, Lou S. said:

See Peter's answer in post #2. I think that is as clear as you are likely to get.

Is there any sample participant notification template about the plan termination? I'm just looking for a sample to see what will be the appropriate content do include in the notication. 

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