Insider Jeff Fleming

Retirement Plans: Know Your Rights

When it comes time to terminate or roll-over your retirement plan, it's important to know your rights. Jeff Fleming explains the rules of termination and offers sage advice for getting what you are owed.

Most companies today offer some type of retirement plan to retain their existing employees and attract new ones. Profit-sharing, 401(k) plans, SEPs, and SIMPLE plans each offer their own advantages and present some limitations or disadvantages, as well. Employers, often with the help of an expert consultant, select a plan appropriate for their company. If they later opt to terminate their plan, or if you need to roll-over your account, keep in mind the following points.

Plan Termination
Once a qualified plan is established, it becomes very difficult and complicated to terminate. Of course, some are easier to terminate than others. A company's first step in a termination, however, is to determine the termination date and the actual benefits owed to the plan participants as of that end date.

If there are any liabilities or benefits on the plan, they must be paid as soon as practical after the termination date. Generally, a distribution not completed within one year following the employer's plan termination date will be presumed non-compliant. Note: The timing of distribution is actually determined on a case-by-case basis.

ERISA
The labor law requirements for retirement plan termination are spelled out in a set of laws commonly known as ERISA. One of the primary purposes of ERISA is to protect employees, so naturally, it describes how an employer must terminate a plan. These details include providing a notice of intent to terminate, and creating an actuarial certification of the plan assets and liabilities.

Penalties
There can be significant penalties for failure to comply with these very complicated rules. Therefore, I strongly urge employers to retain and consult with a pension expert if they desire to terminate a retirement plan.

Where Are My Benefits?