What happens to our 401(k) plan if our business closes?
Closing your business does not automatically end your 401(k) plan. Your plan stays active with Betterment until it is formally terminated. Until then, plan responsibilities like compliance testing and Form 5500 filing still apply.
If your business has closed or is about to close, contact your Betterment at Work support contact as soon as possible. We'll help you wrap up final payroll and employer contributions and start the plan termination process.
Do we still owe employer match on our final payroll?
In most cases, yes. If employee contributions were withheld from final paychecks, the employer match on those contributions is generally still owed based on your plan's match formula.
If your plan matches each pay period, the match for your final payroll should be funded with that payroll. If you're not sure whether it was funded, check your payroll history on your plan sponsor dashboard or reach out to us.
What if our plan calculates the match annually?
Some plans calculate the employer match over the full plan year instead of each pay period. When a business closes mid-year, a final "true-up" contribution may be needed so employees receive the full match they're owed for the partial year.
Whether a true-up is owed depends on your plan's rules. Check your Adoption Agreement for the match calculation period and any requirement that employees be employed on the last day of the plan year to receive the match.
Learn more in Understanding 401(k) True-Up and True-Down Contributions (link: https://www.betterment.com/help/work/401k-true-up-contributions).
How will we know exactly what match is owed?
If your plan had contributions in the year it's terminating, final compliance testing is required. As part of that testing, Betterment reviews contributions for the partial year and identifies any additional employer contributions or corrections needed.
If anything is owed, we'll create a task on your plan sponsor dashboard so you can review and approve it. You can find open items by selecting Tasks from the left-hand menu.
Where can I review contributions we've already made?
Log in to your plan sponsor dashboard and select Payroll from the left-hand menu to review past payrolls, including employee contributions and employer match.
If something looks missing or incorrect, contact your Betterment at Work support contact with the payroll date and the employees affected.
How do I start terminating our 401(k) plan?
Reach out to your Betterment at Work support contact. You can find your contact by going to Resources > Support on your plan sponsor dashboard.
From there, the process looks like this:
- We'll send you a Plan Termination Questionnaire to review and sign.
- Once it's signed, you'll pay any outstanding invoices, including a plan termination fee.
- After invoices are paid, we'll send you a timeline with next steps.
If your business is closing due to bankruptcy or insolvency, let us know when you reach out.
How long does plan termination take?
Terminating a 401(k) plan typically takes several months. After final invoices are paid, here's what to expect:
- Plan termination resolution: We draft it within about 2 weeks. You'll sign it through DocuSign.
- Final compliance testing: Completed within about 2 months. You'll approve any corrective actions, such as a final match true-up.
- Participant distributions: Completed within about 3 months. Employees receive a 30-day notice first.
- Final Form 5500: Prepared within about 2 months. You'll sign and e-file it when instructed.
We'll also turn off your payroll integration as of the plan's termination date.
What happens to our employees' 401(k) accounts?
When the plan is terminated, all employee balances become 100% vested, including employer contributions.
Employees will be notified and given 30 days to request a distribution, such as a rollover to an IRA or a new employer's plan. If they don't take action, their balances will be moved to an IRA with our automatic rollover partner, Inspira Financial.