When facing the unfortunate circumstance of employee resignations and retirements or having to terminate or layoff employees, companies should be aware of certain retirement plan considerations for the employee in addition to supplying information on heath insurance coverage. Employers should ensure that former employees participating in the company’s retirement plan have the plan’s current Summary Plan Description (SPD). This summarizes the benefits that may be available to the participant and how to collect the benefits as well as how to roll over the 401(k) account to a new employer’s plan or to an IRA, if the old plan permits. This is a good time to provide the former employee with a rollover or distribution form so that they can make the necessary request to distribute their account balance out of the plan.
Participants should also be reminded to keep current or stay alert for any changes the company makes in regards to the plan, including changes of address, employer name, or mergers. Employers should communicate necessary information to former employees who continue to keep their account balance in the former employer’s plan whenever there are changes to the plan or information required to be in the SPD. This should be done through the Summary of Material Modification and must be furnished to participants within 210 days after the end of the plan year in which the change was adopted. Further, the participants should be reminded to update the plan with any future changes to their contact information.
Finally, for any large scale reduction in employees, a Company must be aware of any partial plan termination implications. See “Partial Plan Termination” blog – June 30, 2009.
Jonathan Poppel, CPA