How to Dissolve 401(k) Plans

Retirement plans such as 401(k)s are guaranteed by the Pension Benefit Guaranty Corporation (PBGC), a government agency that insures that investors don’t lose the money they have saved towards retirement. When a company that has sponsored any kind of a pension benefits plan wishes to end it for any reason, there is a series of steps that the employer must follow. Although there are many different situations that may occur, most 401(k) plans are dissolved following the PBGC’s standard termination procedures.

Select a date for the plan to end. Send all involved parties a “Notice of Intent to Terminate” at least 60 days before the date, but not more than 90 days prior to termination.

Give each person in the 401(k) plan and affected beneficiaries a “Notice of Plan Benefits” that gives notice of what the new benefits plan will be. If you have the money when closing the plan, you will normally purchase each participant an annuity to replace the 401(k) that will provide the same amount of income. It is important to note that all participants become fully vested in their own and the employer’s contributions when the plan terminates.

Notify the Pension Benefit Guaranty Corporation of your intent to dissolve the 401(k) by submitting Form 500 to the PBGC. Send it out at the same time as the Notice of Plan Benefits.

Send those eligible for 401(k) benefits a “Notice of Annuity Information” at least 45 days before the anticipated distribution date. It is important to include anyone who will receive an annuity as a result of the dissolution of the 401(k) plan in this notification.

Distribute all assets by the deadline. This date is normally 180 days after the end of the Pension Benefit Guaranty Corporation review period. This is the time that all annuities purchased for plan members will be distributed.

Provide each recipient of an annuity with a “Notice of Annuity Contract.” This must be completed no longer than 30 days after the deadline for the benefits distribution.

File a “Post-Distribution Certification” with the PBGC once all of the standard termination steps are complete. This is the final step and completes the process required to dissolve a 401(k) plan.


  • The guaranty offered by the PBGC only covers basic benefits that were earned prior to the termination of the plan. Make this clear to participants to avoid confusion later.


  • If you can’t afford annuities for the 401(k) participants, you will have to proceed with a non-standard termination of the plan. Each one of these is different, depending on the circumstances. Contact the Pension Benefit Guaranty Corporation for specific instructions on how to proceed.