If a Plan is Terminated Mid-Year, Do Participants Get a Partial-Year Contribution?

Q: We are terminating our ERISA 401(a) plan and will be redirecting the employer contributions under that plan to our existing ERISA 403(b) plan. Our 401(a) plan operates on a calendar-year basis, and the termination date falls mid-year. Employer contributions to the 401(a) plan are made on an annual basis, so the 2026 employer contribution would normally be for the entire 2026 calendar year. However, since the plan termination date will be in the middle of 2026, would participants only receive a partial-year contribution for 2026? Or should they receive a contribution based on the full 2026 calendar year?

Kimberly Boberg, Kelly Geloneck, Emily Gerard and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Generally, terminated plans are funded only through the plan termination date and not for the full year. Thus, in your case, the participants would generally only receive a partial year contribution to the 401(a) plan in 2026. Having said that, it is possible that your plan document provides for a full-year contribution in the year of termination. Outside ERISA counsel should confirm if such language is present or if no such language is present.

NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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