How do I end the plan?

The employer amends the plan to set a termination date and stop contributions, fully vests every affected participant, pays any required contribution still owed, distributes every benefit as soon as administratively feasible, and files a final Form 5500. Stopping contributions alone does not end a plan, because a plan that still holds assets is an ongoing plan.

A cash balance plan is a kind of defined benefit plan, so the rules in this answer apply to it.

A plan the PBGC covers ends through a standard termination. The plan administrator gives a notice of intent to terminate to affected parties 60 to 90 days before the proposed termination date, then files PBGC Form 500 by the earlier of 180 days after that date or 60 days before any distribution. The PBGC has 60 days after a complete filing to review it. The PBGC does not cover a professional service employer's plan that has never had more than 25 active participants at any time after September 2, 1974, or a plan maintained only for substantial owners, meaning owners of more than 10 percent of the business.

Asking the IRS for a determination letter on the plan’s status at termination, on Form 5310, is optional.

No statute or regulation sets a number of years. Treasury regulation 1.401-1(b)(2) says a plan is a permanent program, not a temporary one, and that abandoning it within a few years for a reason other than business necessity is evidence the plan was never a genuine program for employees.

The IRS puts the same rule plainly: “Retirement plans must be established with the intention of continuing indefinitely.” A plan ended after a few years for a real business reason, such as a sale, a lasting loss of income or the owner’s retirement, stands on that reason. A plan opened, deducted, closed and then opened again invites the IRS to ask whether the first plan was ever permanent. A fixed number of years quoted by a seller or an adviser is a habit, not the law.

Yes, the employer can end the plan at any time, and the law sets no penalty for ending a plan as such. The costs are the work of ending it, full vesting for every affected participant, any shortfall the employer must fund, and an excise tax on any surplus the employer takes back.

When a plan ends, section 411(d)(3) makes every affected employee’s accrued benefit nonforfeitable to the extent the plan is funded, so an employee who had not yet vested keeps the benefit earned to that date. Ending a plan soon after opening it, for a reason other than business necessity, is the fact pattern 26 CFR 1.401-1(b)(2) describes, so the business reason for ending a plan belongs in its records.

The employer funds the shortfall before the plan pays out. A plan cannot finish a standard termination until its assets cover every benefit, and any minimum contribution left unpaid is taxed at 10 percent under section 4971, then 100 percent if it stays unpaid.

A standard termination is the PBGC’s process for the plans it covers. The PBGC does not cover a professional service employer's plan that has never had more than 25 active participants at any time after September 2, 1974, or a plan maintained only for substantial owners, meaning owners of more than 10 percent of the business. An excluded plan has no federal insurer behind its benefits.

Leftover money can go back to the employer only if the plan provides for it and every benefit has been paid. The employer then pays an excise tax of 50 percent on the amount, or 20 percent if it keeps a qualified replacement plan or grants pro rata benefit increases, plus income tax on the amount.

A plan provision that sends leftover money to the employer, or an amendment that raises the amount, does not take effect until the end of the 5th calendar year after it is adopted, unless the plan has provided for it since the plan began.

What if I already have a pension?

The answer depends on how the business is sold. In an asset sale the plan generally stays with the selling company, which can end it and pay everyone out. In a stock sale the plan generally goes with the company to the buyer, unless the sale agreement requires the plan to end before closing.

Either way, a plan with a shortfall must be funded before it can end, and a plan with surplus faces the reversion tax, so the actuary belongs on the sale timeline. A sale is the kind of business reason that supports ending a plan under the permanence rule.

An owner who retires and closes the business ends the plan, and each participant takes the benefit as an annuity or, where the plan offers one, as a lump sum that can roll to an IRA. An owner who keeps the business running can keep the plan open, and the plan pays under its own terms at its retirement age.

The plan’s terms set how a benefit taken early or late is adjusted, within the limit section 415 places on the annual benefit. A business that ends one plan and later starts another is held to the same limit across both, because section 415 treats all of an employer’s defined benefit plans as a single plan.

When can I take money out?

Yes. The plan belongs to the employer. The actuary, the administrator, the custodian and any adviser are service providers the employer can replace through new agreements, with plan amendments where needed, without ending the plan. The new administrator starts from the plan’s own records.

The records a new administrator needs are the plan document and every amendment, the prior actuarial valuations, every Form 5500 filing and the census. A filing or contribution missed under the old provider can be corrected through the correction programs the IRS and the Department of Labor run.

How do I start a plan?