Terminating a retirement plan is complicated. The importance of having a well thought out plan in place before beginning the plan termination process is imperative because making mistakes can be costly.

To better understand why plan sponsors were making mistakes in qualified plan terminations, the IRS Employee Plans Compliance Unit conducted a “Termination Project” in 2011. Over 75% of the sampled sponsors made errors!

So what kind of errors did plan sponsors make?

• Did not file a final Form 5500 series return

• Did not actually terminate their plan

• Mistakenly indicated the plan was terminated when it was frozen

• Mistakenly used the same plan number from a previous or different plan

• Distributed all plan assets but didn’t mark the final Form 5500 series to show it was the final return

• Distributed all plan assets but did not indicate zero assets at the end of the plan year

• Did not distribute all plan assets as soon as administratively feasible (*generally within 12 months)