Ask the Experts September 22, 2015

(b)lines Ask the Experts – Must a Frozen 401(a) Plan Be Terminated?

“We are a large 501(c)(3) health care organization that froze its Employee Retirement Income Security Act (ERISA) 401(a) defined contribution plan several years ago, essentially replacing the plan with employer contributions to our 403(b) plan.
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However, we have not terminated the plan; the plan has remained frozen since the initial amendment to freeze. Can the plan remain frozen indefinitely, or must we terminate the plan at some point?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:      

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There is nothing in the Internal Revenue Code or ERISA that REQUIRES termination of a frozen retirement plan, so, indeed the plan can remain frozen for an indefinite period. However, as a practical matter, if there are no plans to resume contributions to the 401(a) in the future, you may wish to consider termination of the plan, for the following reasons:

1)      Virtually all of the requirements for active retirement plans apply to frozen plans, including reporting (Form 5500) and disclosure (summary plan descriptions (SPDs), summary annual reports (SARs), etc.);

2)      The plan document will be required to be updated to reflect changes in the law on an ongoing basis (and, in the Experts experience, such amendments are often overlooked, creating compliance concerns); and

3)      Frozen plans can be “forgotten” over time by both participants and plan sponsors, making the process of termination more difficult the longer it is delayed.

The primary disadvantage of terminating a defined contribution retirement plan is that distributions would be available for active employees who would otherwise not be entitled to such a benefit. However, if the plan has been frozen for several years as you state, the population of participants in the plan who are active employees is likely to be low relative to the total participant population.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
Compliance September 21, 2015

Firm to Pay for Firing Retirement-Age Workers

The EEOC accused the firm of firing two employees when they reached age 62.
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Stack Bros. Mechanical Contractors, Inc., a heating and plumbing contractor in northern Wisconsin and northern Minnesota, will pay $140,000 and furnish other relief to settle an age discrimination and retaliation lawsuit brought by the U.S. Equal Employment Opportunity Commission (EEOC).

The agency’s investigation revealed Randy Virta and Karen Kolodzeske repeatedly warned the company’s owner that his plan to fire them when they turned 62 was illegal. However, the owner followed through with his plans, firing both employees and retaliating against Kolodzeske for her complaints, first by denying her a raise and then by demoting her and cutting her hours and pay. Virta and Kolodzeske had worked for Stack Bros. for 16 and 25 years, respectively.                               

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The consent decree settling the suit prohibits future discrimination and provides that Stack Bros. will pay $95,000 to Virta and $35,000 to Kolodzeske, pay $10,000 of their private attorney’s fees and train its managers and employees regarding employer obligations and the rights of employees under the Age Discrimination in Employment Act (ADEA).

“Employers often speak about how valuable loyalty in the workplace is,” says EEOC Chicago Regional Attorney John C. Hendrickson. “But it’s a two-way street. Long-time, dedicated employees, like those in this case, are entitled to expect that their employers will not discharge them because of their age and in defiance of federal law. When Stack Bros. fired Mr. Virta and Ms. Kolodzeske because of their age, it ruptured the band of loyalty. This settlement is a way to make things right.”

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