As an employer, you may have decided to shut down your 401k plan for various reasons. It could be due to financial difficulties, regulatory complexity, or simply because you want to switch to a different retirement plan. 

Whatever the reason may be, here’s a simple overview of what’s generally required to terminate a 401k plan (note: check with your plan provider to understand what’s needed for your particular situation): 

  1. Notify Plan Participants: The first step is to inform your employees about the plan’s termination. This notice should include the date when the plan will terminate, the reason for the termination, and any important details that participants need to know, such as how to withdraw their funds or roll them over to another plan.
  2. Cease Contributions: Once you have notified your employees about the plan’s termination, you need to stop making contributions to the plan. This includes both employer and employee contributions. You can set a deadline for when these contributions will stop, and make sure that all contributions are made before this date.
  3. Distribute Funds: The next step is to distribute the funds in the plan to your employees. You can do this by offering them a lump sum payment or by allowing them to roll over their funds to another qualified retirement plan. You must provide your employees with all the necessary paperwork and information they need to make an informed decision about their funds.
  4. File Form 5500: Finally, you need to file Form 5500 with the IRS to formally terminate the plan. This form includes details about the plan’s assets, participants, and contributions, and it must be filed by the deadline. Failing to file this form could result in penalties and fines.

While terminating a 401k plan can be a difficult decision, there are smart alternatives available. At Icon, we’re helping employers that want a simple and cost-effective way to offer retirement benefits to their employees. With low fees and a user-friendly platform, and no plan testing or federal filings, Icon is a great alternative to traditional 401k plans.

Interested in an alternative to the 401k?

Chat with us.