The Internal Revenue Service (IRS) has published a short, informal guidance document to help plan sponsors and fiduciaries understand key requirements that must be addressed before a retirement plan can be fully terminated under the law.
In particular, IRS warns there are final plan amendments that must be made to protect the plan’s tax-favored status at termination, and to ensure that any related distributions to participants are eligible for rollovers to other qualified plans or individual retirement accounts (IRAs). To this end, IRS urges plan officials overseeing a soon-to-be-terminated plan to closely review the annual Cumulative List that applies to the period in which the plan terminates.
IRS uses examples to demonstrate the importance of checking the Cumulative List, considering a theoretical plan with a termination date of April 15, 2014. “The plan must be updated for all items that apply to that plan on the 2013 Cumulative List because this list applies to the period February 1, 2014 to January 31, 2015,” IRS explains. “You must also amend your plan for any law changes your plan was required to implement as of your plan termination date, even if they were effective after the Cumulative List cutoff date,” based on Revenue Procedure 2016-6, Section 12.05 and Section 8 of Revenue Procedure 2007-44.
“If you apply for a determination letter when your plan terminates, we’ll let you know if you’re missing any of these amendments,” IRS adds. “Although not required, you 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 (instructions), for most pension, profit-sharing or other deferred compensation plans; or Form 5300, Application for Determination for Employee Benefit Plan (instructions), for a multi-employer 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.”
Plan amendments should be adopted before submitting the plan for a determination letter, IRS notes.
The agency further urges plan sponsors and their service providers to consult the various Subject Matter Packages and Termination Focus Reports (2015; 2014; 2013; 2012; 2011; 2010) made available to the public.
“These materials were designed for internal IRS use,” IRS concludes. “You might find them helpful in reviewing your own plan, but they shouldn’t be used or cited as authority for a technical position.”
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