What Is Voluntary Plan Termination

Voluntary plan termination is the discontinuance of a defined-benefit plan by an employer. A voluntary plan termination may only occur if all of the requirements for a standard termination or distress termination are followed by the plan administrator. Section 4041 of the U.S. Code of Federal Regulations addresses voluntary plan terminations.

BREAKING DOWN Voluntary Plan Termination

Under a voluntary plan termination, the assets must be distributed to participants in a manner described by federal law. The employer has the unilateral right to modify or end the retirement plan at any time, which are set out by the Employee Retirement Income Security Act of 1974.

The allocation of plan assets is usually done by the plan administrator or trustee. An employer must distribute assets from a terminated plan as soon as administratively feasible after the plan is terminated.

In a defined benefit plan termination, Form 6088 (reporting the distributable benefits) must be submitted along with a signed and dated actuary’s certification of the adjusted funding target percentage.

Partial Plan Termination

A plan may be partially terminated if more than 20% of plan participants were laid off in a particular year. Partial terminations may be connected with a significant corporate event such as a closed office location or as a result of adverse economic conditions.

The law requires all affected employees to be fully vested in their account balance as of the date of a full or partial plan termination.