Is a plan-termination amendment needed if a plan ends by paying the last benefit?

Many BenefitsLink discussions remark on a need for a plan-termination amendment to make a plan that has been relying on a remedial-amendment period and interim amendments “up to Code” as of the moment the plan is terminated.

Imagine this situation: A one-participant plan was established and is maintained, with the plan sponsor having adopted all interim amendments the recordkeeper presented. The participant died. Of two designated beneficiaries, one claimed her death benefit and was paid. Now, the other beneficiary is getting ready to claim his death benefit.

What if the plan pays that last beneficiary not because the plan sponsor decided the plan’s termination but because the plan’s administrator finds that the beneficiary is entitled to his death benefit?

If the plan sponsor does not amend the plan, would the plan’s distribution to the last remaining beneficiary be a distribution from a tax-qualified plan?

Revenue Procedure 2016-37 includes this: “Section 7. Terminating plans. Notwithstanding sections 5 and 6 of this revenue procedure, the termination of a plan ends the plan’s remedial amendment period and, thus, generally will shorten the remedial amendment period for the plan. Accordingly, any retroactive remedial plan amendments or other required plan amendments for a terminating plan (that is, plan amendments required to be adopted to reflect qualification requirements that apply as of the date of termination) must be adopted in connection with the plan termination regardless of whether such requirements are included on a Required Amendments List.”

But the Revenue Procedure does not define what “the termination of a plan” means.

If the plan sponsor did no act and made no decision to end the plan, is the happenstance of the last beneficiary claiming his distribution a plan termination that invokes a need to amend the written plan?

This is not an academic question. The decedent’s estate’s personal representative, acting as the retirement plan’s administrator, must evaluate whether a plan amendment is necessary so that it’s proper and prudent to charge the expense for it against the plan’s assets and allocate that charge to the segregated account of the remaining beneficiary.

Without doing any research, I would say yes. If the plan assets are zero, the plan effectively cannot continue. If the plan sponsor has adopted all amendments presented by the recordkeeper, including a SECURE 2.0 amendment, all that may need to be done to terminate the plan is a resolution terminating the plan or a very short termination amendment saying the plan is terminated as of [date]. I think a resolution may be sufficient, but we would likely err on the conservative side and also draft a one-page amendment. From a practical standpoint, one would assume the personal representative would find it worth the negligible expense to ensure that the distribution to the remaining beneficiary is from a tax-qualified plan and eligible for rollover.

Additionally, one would assume that no more contributions will be made to the plan (and perhaps no contributions have been made for some time) so that would cause IRS to, at the least, say the plan was partially terminated. That may have no practical effect since the deceased participant's account balance would have become 100% vested at death anyway. But if everyone's been paid out and the plan assets are at zero, it's hard to argue you either have an ongoing plan (requiring future amendments and restatements) or you haven't terminated the plan.