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Plan Permanency

“I have a client who set up a defined benefit plan last year and now, because of a financial downturn in his business, wants to terminate the plan. Does the IRS require an employer to maintain a defined benefit (DB) or defined contribution (DC) plan for a certain number of years?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in Michigan is representative of a common inquiry related to plan permanency.

Highlights of Discussion


Employers who have established or who may be contemplating establishing a qualified retirement plan must be aware that the IRS expects the arrangement will be a permanent one.  And although plan sponsors reserve the right to terminate their qualified retirement plans, the IRS views “business necessity” as the only legitimate reason for plan abandonment.