There are many steps to winding down your business’s operations. Once you fulfill your business’s outstanding orders and release your employees, you will need to cancel your tax accounts, licenses, permits, and registrations, and terminate services such as your employee savings plans and benefits.
Four kinds of employee savings plans and benefits you may need to cancel are health insurance, flexible savings accounts, benefit accounts, and retirement plans. In this short guide, we’ll show you how to take on this task.
Canceling your employees’ health, dental, and vision insurance
When your business closes, your employees will lose access to the health, vision, and dental insurance your business offered. Because of the Affordable Care Act, you’re legally required to give your employees at least 60 days of notice that their medical insurance will be terminated. If you haven’t already provided that notice, make sure to do so immediately.
How do I cancel my business’s policy?
It’s relatively simple to cancel your insurance plan. Most insurance carriers will ask you to call their customer support team to start the process and obtain a list of the specific steps you’ll need to take.
Some carriers will ask for a 30-day notice for cancellations, but others allow employers to cancel at any time. Keep in mind that your policy’s termination date must occur a full 60 days after providing notice to your employees.
|When canceling your insurance policies, be sure to change your address on file with your insurance carrier. This smart move will set you up to receive any post-close documents the provider might send. You should plan to permanently file those documents with other key business information.|
Do I need to provide COBRA coverage?
According to the Department of Labor, COBRA coverage cannot be offered if the health insurance plan is no longer in effect.
What can I do to help my employees?
Let your employees know that insurance coverage is available to them through the health insurance marketplace. In some instances, your employees could obtain lower-priced insurance with better coverages through the marketplace than they received through your company’s plan.
Canceling your employees’ flexible spending accounts
If your business offered flexible spending accounts for healthcare, dependent care, adoption assistance, or qualifying reimbursements, you’ll need to terminate those programs, too. Be sure to deactivate any flex cards your business offered on your employees’ final day of work.
What do my employees need to know?
Tell your employees that their flexible savings balances will be forfeited when their accounts close. Advise them to use the money on qualifying expenses, if at all possible, to avoid losing their allotted savings.
Canceling your employees’ retirement accounts
Earlier in the closure process, you should have provided notice that your business’s retirement plan was discontinuing.
Now, you’ll need to take two steps:
- Ensure that you’ve fulfilled your required employer contributions to the plan.
- Make sure you’ve amended your plan to include any legal changes you were required to implement by its termination date.
Once those steps are complete, you can contact your retirement plan provider and authorize a distribution of the accounts that remain. Follow your provider’s procedures for distributions.
I have former employees who never requested a rollover of their retirement account balances. What do I do if I can’t contact them?
The U.S. Department of Labor offers some guidance. Read Field Assistance Bulletin No. 2014-01 for more information.
Do I need to fulfill any IRS requirements?
Yes. After your plan ends, you’ll need to file your final Form 5500 series return, and you may need to file a request that asks the IRS to make a determination about your plan’s qualification status at termination. A tax attorney will be able to advise you whether you should file Form 5310, Application for Determination for Terminating Plan (a form that requires employee notice) and accompanying documentation, which should include:
- Form 8717, User Fee for Employee Plan Determination Letter Request and a check for the appropriate user fee
- A completed Procedural Requirements Checklist from Form 5310
- All the plans and the amendments it has adopted since the last favorable determination letter (if applicable)
- The last favorable determination letter (if applicable)
- The latest opinion or advisory letter (if applicable)
- A record of all actions taken to terminate the plan
- Copies of any required attachments and statements specified in Form 5310
Your tax attorney can also advise whether you should file Form 6088, Distributable Benefits from Employee Pension Benefit Plans and accompanying documentation, which should include:
- A signed and dated actuary’s certificate of the adjusted funding target percentage (AFTAP) for the last two years (including the year of termination)
- A Schedule SB to Form 5500 for the last two years (including the year of termination) and for any year in which the AFTAP was below 80 percent (or below 100 percent in years in which the plan sponsor is a debtor in bankruptcy)
You can learn more about the steps required to terminate specific types of retirement plans through the following IRS resources:
- Defined benefit plan termination
- 401(k) plan termination
- 403(b) plan termination
- SIMPLE IRA plan termination
- SEP termination
- SARSEP termination
- Payroll Deduction IRA termination
Would you like to learn more about working with a tax attorney? Check out the guide below. You can also connect with an attorney by clicking this button:
Terminating other benefits
If your business offers other benefits, including identity theft protection, allowances for flexible work arrangements, student loan aid, or prepaid tuition expenses, talk with the program providers who helped you establish the program. Follow their processes for termination.
|If you promised educational reimbursements to your employees for courses that are already paid for or underway, commit to covering those costs so that you can avoid future lawsuits.|
There are quite a few more steps you’ll need to take to fully close your business. Log into your owner’s portal for a step-by-step checklist with the critical actions you’ll need to take.