Common Mistakes Plan Sponsors Make When Terminating 401(k) Plans

Typical errors that plan sponsors make:

  • Do not file a final Form 5500 series return
  • Do not actually terminate their plan
  • Mistakenly indicate the plan is terminated when it is frozen
  • Mistakenly use the same plan number from a previous or different plan
  • Distribute all plan assets but don’t mark the final Form 5500 series to show it is the final return
  • Distribute all plan assets but do not indicate zero assets at the end of the plan year
  • Do not distribute all plan assets as soon as administratively feasible (*generally within 12 months)

Why did plan sponsors make these errors?

  • Length of time required to find missing participants
  • Difficulty in distributing certain types of plan assets (real estate or partnership investments)
  • Not aware all plan assets must be distributed
  • Not aware of the difference between a frozen and terminated plan
  • Not aware there were still assets in the trust

Next Topic: What Should Plan Sponsors Look for in a Terminating Plan Service Provider?

Terminating a 401(k) Plan - Common Mistakes

Sponsors Quick Connect