Be Diligent When Your Employer Terminates Your Company's Retirement Plan
A recent IRS private letter ruling (PLR) showcased what can happen when a company retirement plan is terminated, and a common mistake that can occur when paying out those funds to employees or ex-employees.
When a company retirement plan such as a 401(k) plan is terminated, the company has to go through a lot of formal steps to terminate it beyond simply deciding to discontinue the plan. Some of those steps include providing full vesting of benefits to all affected employees, notifying all participants and beneficiaries about the termination and sending them a rollover notice, and distributing all the plan assets as soon as administratively feasible (generally within 12 months after the termination). During this process, mistakes can be made, especially when the plan is terminated because the company was sold.
In PLR 201430028, released by IRS on July 25, 2014, the IRS gave an individual more time to complete a rollover when he didn’t receive his retirement plan distribution after his former employer was sold and the employer plan was terminated. The problem was that the plan administrator had an old address on file. The individual chose to request a PLR, asking IRS to waive the 60-day rollover period, to make sure he could roll over the replacement check that was finally sent to him many months later.
The IRS waived the 60-day rollover period and said his failure to timely roll over the original distribution was due to the fact that he never received it. However, getting a PLR from IRS is costly and time consuming.
We suggest that when your employer is sold and the company retirement plan is terminated, follow up with the plan administrator to make sure that things don’t fall through the cracks. Be proactive and anticipate that problems can happen. For example, having a bad address on file with the plan administrator will likely cause problems. You may want to contact the plan administrator to ask about the status of the retirement plan after your company is sold.
- By Joe Cicchinelli and Jared Trexler
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to firstname.lastname@example.org for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at email@example.com or (516) 536-8282 with any questions.