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From the brief of Tuesday, October 27, 2026 · No. 14

From the daily brief · Policy

Closing or selling a firm? Its 401(k) must be formally terminated and paid out, DOL reminds owners

The effect is small unless you plan to close, sell or merge a firm that sponsors a retirement plan. Then the plan has its own wind-down steps.

By Carter Josephson · · 1 min read

What happened

On Oct. 26, 2026, the Department of Labor announced a consent order against the retirement plan fiduciaries of a defunct Chicago law firm for failing to distribute $6.4M in plan assets. We could not open the release itself, so the details of the case are not confirmed here. The IRS publishes the steps a sponsor must follow to end a plan.

What it means for a 10-to-50-person business

For most readers the effect is small. It matters if you are closing, selling or merging a firm that has a 401(k) or similar plan. Closing the business does not close the plan. Per the IRS, a plan that has not paid out all assets is still ongoing and must keep meeting qualification rules. The IRS steps: amend the plan with a termination date, notify participants, send rollover notices, pay outstanding employer contributions, vest everyone 100%, distribute all assets (generally within 12 months of the termination date) and file a final Form 5500. Example: a 14-person accounting firm has an assumed $1.8M across 14 accounts and two partners plan to wind down in 2027. Former employees who never answer mail still need to be paid or rolled over. If your firm is staying open, you can ignore this.

What to do
Ask your vendor

If you might close, sell or merge within the next 12 months, ask your recordkeeper or plan administrator in writing for their plan-termination checklist, fee, timeline and who signs as plan fiduciary.

What it costs
What it costs
Email or call to recordkeeper or administrator
30 min
Plan-termination fee (assumption, varies by provider)
$1,500 to $3,000 one-time
Partner time on resolution, notices and final Form 5500 review (assume 5 hrs at $150/hr)
≈ $750
Doing nothing
$0 if your firm stays open; if you close with assets undistributed, the plan stays open and its fiduciaries stay responsible
Sources
irs.gov (primary) · IRS: Terminating a retirement plan · DOL EBSA: Terminating a retirement plan

Questions owners ask

Does this matter if my firm is not closing?

Not much. An active plan with a working administrator is not affected.

How long do I have to pay everyone out?

The IRS says assets should be distributed as soon as administratively feasible, generally within 12 months after the termination date.

What if a former employee cannot be found?

Ask your plan administrator how they handle missing participants. The plan stays open until all assets are distributed.

Three to five of these, every weekday morning.

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