SERVICES

Plan Termination

A step-by-step approach to ending your plan.

How do I terminate my retirement plan?

Retirement plans are typically established with the intention of being long-term benefits for employees. However, there are situations where a business may choose—or be required—to terminate its plan(s). Whether due to company closure, a merger or acquisition, financial hardship, or a shift in business strategy, terminating a retirement plan involves a formal process governed by the IRS and Department of Labor (DOL).

Terminating a retirement plan necessitates assistance from retirement plan experts like LRS, to navigate the various IRS and DOL requirements related to a retirement plan termination.

Common Misconceptions

A frequent misunderstanding is that simply closing a business automatically terminates the retirement plan. This is not the case. Without proper termination, the plan remains active in the eyes of the IRS and DOL, which can lead to notices, tax assessments, and late filing penalties.

Even if a plan is inactive or only covers a solo-prenuer, it must be officially terminated to avoid ongoing compliance obligations and potential penalties.

A plan that holds non-traditional assets such as private stock, real estate, LLC units, promissory notes and more, must engage in additional activities, even if those assets have no remaining value.

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Why Proper Termination Matters

To avoid these issues, plan sponsors must follow a series of federally mandated steps to formally dissolve their retirement plan. This includes notifying participants, distributing plan assets, filing final forms, and ensuring all regulatory requirements are met.

How LRS Can Help

Terminating a retirement plan is a complex process that requires careful attention to detail. At LRS, our retirement plan experts are here to guide you through each step, ensuring compliance and peace of mind.

If you’re considering terminating your retirement plan, we recommend contacting us before or as you begin the process. Early guidance can help you avoid costly mistakes and streamline the termination process.

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HOW IT WORKS

What We Do To Help

We help you terminate your retirement by completing all necessary actions in compliance with IRS and DOL regulations.

Services We Provide

As part of the Plan termination process, we will guide you in the redemption and/or removal of all plan assets, prepare final year reporting and provide the pre-populate “final” IRS Form 5500, which signals the IRS and DOL that no further Form 5500’s should be expected of your retirement plan.

Nontraditional Assets

If your plan holds non-traditional assets (more details below) it is important that you properly liquidate and/or transfer such assets out of the retirement plan. We are only able to finalize the dissolution of your retirement plan and file the “final” IRS Form 5500 once all assets are properly removed from the retirement plan.

Why Terminate

A retirement plan may need to be terminated if the company is closing, facing financial hardship, undergoing a merger or acquisition, or shifting its business or compliance strategy.

Work with the LRS team to complete the plan termination activities (typically include but are not limited to):

Prepare and complete board-approved resolution(s) to terminate the plan.
Bring plan documents into compliance with final regulations (as applicable).
Distribute plan assets, which will allow the final activities to commence.
Finish final annual compliance testing, administrative reporting, and government tax filing(s)

What If My Plan Has Nontraditional Assets?

If your retirement plan holds nontraditional assets, such as qualified employer securities, private stock, real estate, promissory notes, or precious metals, these must be properly valued, transferred, or liquidated before the plan can be closed and a final IRS Form 5500 can be filed. Regulations require a current valuation of these assets, and LRS will need this information for final reporting.

In some cases, certain nontraditional assets may be eligible for in-kind distribution to participants, but this must meet strict valuation, compliance, and documentation requirements. We recommend working with qualified experts to ensure proper handling and regulatory compliance.

For more frequently asked questions related to the plan termination process, please review our?Plan Termination FAQ.

Plan Termination FAQ