Pension plans must be created indefinitely, meaning there is no intention of terminating them, according to the Employee Retirement Income Securities Act of 1974 (known as ERISA). That being said, a company may open a different plan, close divisions or file bankruptcy due to financial hardship. As such, the employer may terminate the profit sharing plan. The Department of Labor, though ERISA regulations, oversees the termination assuring employee assets will be protected.

Step 1.

Determine how the benefits will be paid to the employees. Pension plans may only be terminated if the plan still maintains enough funds to pay 100 percent of benefits to employees through the purchase of an annuity or lump sum distribution.

Step 2.

File Form 500, the Standard Termination Notice and Form 501, Post Distribution Certification with the Pension Benefit Guaranty Corporation.

Pension Benefit Guaranty Corporation Standard Termination Compliance Division, Suite 930 Processing and Technical Assistance Branch 1200 K Street NW Washington, DC 20005-4026

Step 3.

File Form 5310, Application for Determination for Terminating Plan, with the Internal Revenue Service (IRS).

Internal Revenue Service PO Box 192 Covington, KY 41012-0192.

Step 4.

Contact the plan administrator and request termination paperwork. You will need the acceptance letter from the IRS and the Pension Benefit Guaranty Corporation to proceed with the termination.

Step 5.

Notify employees of the plan termination, allowing them to elect a lump sum or to participate in the annuity if this is an option.

Step 6.

Distribute the funds.


Tax-deferred programs must give employees 100 percent of their vested amount when a plan terminates.


ERISA has certain protections for employees of companies where the pension plan becomes insolvent. Talk to a financial adviser or attorney about your options.