What Mistakes Do Plan Sponsors Make When Terminating 401(k) Plans?
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Terminating a 401(k) Plan - Common Mistakes
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
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