A retirement plan has to meet certain basic requirements in order for your company to be eligible for the various tax benefits it can receive by offering employee retirement plans. The most important is that any qualified plan has to be established with the “intention” of being permanent. Regulations do not give a “bright line” test regarding how long is “permanent.” As a general rule, 401(k) retirement plans should have been in place for at least two years. Defined Benefit plans (also known as pensions) have to have been extant for 5-10 years. If your plan has not existed as long as required, you may be able to show it was intended to be a permanent plan with support documentation showing “unexpected events” (a huge economic downturn, changes in laws, a company restructuring, and so on) necessitated termination of the plan.

If you terminate a 401(k) plan, you may not be able to start another plan for at least 12 months. If you are thinking of terminating your organization's 401(k) plan, consider it carefully. You may be able to redesign the plan so that it better meets your company's objectives without making the plan termination necessary.