If allowed by the terms of the plan, a 403(b) plan sponsor (employer) may terminate the plan and distribute accumulated benefits to the participants and beneficiaries on termination.
To terminate a 403(b) plan, the plan sponsor must take the following steps:
- Adopt a binding resolution:
- establishing a plan termination date,
- ceasing plan contributions,
- fully vesting all benefits on the termination date, and
- authorizing the distribution of all benefits as soon as administratively practicable after the termination date;
- Generally, stop contributions by the sponsor or any related entity to any other 403(b) plan during the period that begins on the termination date and ends 12 months after all benefits have been distributed from the terminated plan (this requirement may be disregarded if at all times during the period beginning 12 months before the termination and ending 12 months after all benefits have been distributed, fewer than 2% of the employees who were eligible to participate in the terminated plan are eligible to participate in another 403(b) plan of the sponsor);
- Notify all plan participants and beneficiaries about the plan’s termination;
- Provide a 402(f) rollover notice to participants and beneficiaries; and
- Distribute all plan assets within 12 months of the plan’s termination date to participants and beneficiaries in accordance with
Rev. Rul. 2011-7.
403(b) plans subject to ERISA may have to comply with additional requirements.
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