The following steps need to be taken to terminate a money purchase plan. The IRS periodically issues various pronouncements and advisory announcement, so the requirement here can change.
Important Note: Other retirement plans such a profit sharing and defined benefit plans must follow similar but not identical procedures.
Timing considerations should be explored based upon the particular factual situation. Tax and practical considerations need to be analyzed.
Timely drafting of the appropriate plan amendment and corporate resolutions to legally implement the termination are required.
Notice should be given to participants on a timely basis. The notices must comply with IRS and Department of Labor (DOL) rules and regulations.
Generally the plan must be amended for the various applicable tax acts before the plan can be terminated. This comes as a surprise to many owners who have a plan that they want to terminate. For example, retirement plans must be amended for GUST, EGTRRA, Pension Protection Act of 2006 (PPA), Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act); and the Worker, Retiree, and Employer Recovery Act of 2008 (PPA Technical Corrections Act), etc.
Draft the proper documentation to effectuate freeze. Timing is imperative here to avoid a mandatory contribution in the year of termination.
Prepare the required forms for this purpose in accordance with IRS and DOL rules.
Prudence would dictate filing this Form 5310 in most plan terminations.
Provide participants with items such as the 402(f) notice, joint and survivor annuity explanation/waiver, distribution election form and related instructions and filing forms.
The IRS and DOL rules often require this purchase of annuities in certain cases.
To avoid complications, such distributions should be done as soon as possible and in a fashion to avoid having to file additional Form 5500s.
This Form 5500 needs to be filed so long as a plan has assets, so due care should be taken in the transfer of assets from the money purchase pension and filing of this final Form 5500.
The above is merely an overview and each of these steps require attention to their detailed requirements. If you need assistance please do not hesitate to contact us.
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From their offices in Philadelphia, PA, the law firm of Steven J. Fromm & Associates, P.C. provides a full range of estate planning, probate and estate administration, tax, business and corporate legal services to clients throughout eastern Pennsylvania and the Delaware Valley, the Lehigh Valley Area, the Five-County Area, Bucks County, Delaware County, Montgomery County, Chester County, Philadelphia County, Berks County, Lehigh County, Lancaster County, York County, Harrisburg, Norristown, Doylestown, Media, West Chester, Allentown, Lancaster, and Reading.