IRS provides guidance on plan amendments required before terminating plans

In the latest edition of Employee Plans News, the IRS has outlined the plan amendments that are required before terminating a retirement plan. These final amendments maintain the plan’s tax-favored status at termination and ensure that distributions to participants are eligible for rollover to other qualified plans or IRAs.

Required amendments

A terminating plan must be updated for all applicable qualification requirements – such as guidance or statutes – on the Cumulative List that applies to the period in which the plan terminates. The plan must also be amended for any law changes that the plan was required to implement as of the plan termination date, even if they were effective after the Cumulative List cutoff date (Rev. Proc. 2014-6, Section 12.05, and Section 8 of Rev. Proc. 2007-44).

Determination letter for a terminating plan

Although not required, the plan sponsor can request the IRS to make a determination on the plan’s qualification status at termination by filing Form 5310, Application for Determination for Terminating Plan, for most pension, profit-sharing or other deferred compensation plans; or Form 5300, Application for Determination for Employee Benefit Plan, for a multiemployer plan covered by PBGC insurance, a plan only partially terminating, or for sponsors not certain of their status as a member of an affiliated service group. The plan amendments should be adopted before submitting the plan for a determination letter.

The IRS has also listed the steps to be taken in terminating a retirement plan and has posted a “Retirement Plans FAQ Regarding Plan Terminations.”

Source: IRS Employee Plans News, Issue 2014-11, August 4, 2014.

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