Fiduciary Forever? How Long Does Fiduciary Responsibility Last After a 401k Plan Is Closed?

Does a fiduciary have responsibility for a closed retirement plan ad infinitum?

I recently was contacted by a former employee of 17 years ago on a plan that has been closed for 4 years in which I was only involved for 2 years. There are still several people who have plan balances – the brokerage firm/investment bank that maintains their balances have either transferred those balances to ‘forced’ IRAs, or they are otherwise in contact with holding those fund balances indefinitely.

Sometimes mailing campaigns are done, other times the funds end up with the state as unclaimed property. Other times – more often than not – the plan balances sit there until the employees get new employers, get professional financial advice, or otherwise figure out they can set up their own plans and transfer/combine the funds. In some cases, they have moved. Or they’ve been in jail so never received mailings about how to do these things at an appropriate time. Possibly they’ve died and their estates don’t know about their thousands, or in some cases millions, still sitting in their accounts.

And in rare cases, the employee never had a plan to begin with, but was reported on the company’s census for testing purposes. In the case I went through, the employee somehow thought he was in the plan, even though he never filled out the paperwork to do so, and on a $10/hour manual labor job probably found it better at the time to pocket the after-tax $8/hour to cover expenses. So what happens when these people reappear years, decades later? There’s suddenly a fire drill – drop all of your current cases because someone thinks they might have $1000 in an account, even though all the evidence says otherwise.

Lesson learned: don’t be or remain a fiduciary of a closed plan years afterward – especially when you were never an on-site accountant/majority owner of the firm or are out of state. Because you will be tracked down for something that never happened until you can get the investment bank to dig out their backup/archive files to prove a negative!

The Real Answer: How Long Are You a Fiduciary After Closing a 401k?

As a CPA and former plan fiduciary, and now as CPA Esq., here’s what the DOL and ERISA actually say:

Under ERISA, you are a fiduciary as long as you have discretionary control over plan assets or administration. Closing the plan does NOT automatically end fiduciary status if:

1. Assets are still in the plan trust
2. You are still listed as Plan Administrator on Form 5500 or plan documents
3. You haven’t formally resigned and appointed a successor fiduciary (assuming there’s someone who could do that role)

Many small business owners close their business but leave the 401k trust open with 5-10 former employees’ balances still in it at Fidelity, Schwab, etc. The brokerage holds the money, but YOU are still the Named Fiduciary and Plan Administrator under ERISA 402(a). That means you still have duty to:

• File Form 5500-EZ or 5500-SF every year until assets are $0
• Provide required notices
• Ensure fees are reasonable
• Respond to participant requests
• Manage forced IRA rollovers and unclaimed property

I was involved for 2 years, but because I was listed as fiduciary and never formally resigned with a filing, I got the call 17 years later.

What Should Happen When You Close a 401k Plan – The Proper Fiduciary Termination Checklist

If you are closing a 401k plan in California, do this:

1. Adopt Board Resolution to Terminate Plan
Document termination date, 100% vesting for all participants as of termination date per IRC 411(d)(3).

2. Notify Participants – 15-30 Days Before
Send Notice of Intent to Terminate and distribution election forms. Participants can elect: rollover to IRA, rollover to new employer plan, or cash distribution (with withholding).

3. Distribute All Assets Within 12 Months
DOL requires you distribute as soon as administratively feasible, generally within 12 months of termination date. Don’t let balances “sit there indefinitely.” For missing participants, you must conduct a diligent search.

4. Diligent Search for Missing Participants – DOL Guidance
Before you can force to IRA or escheat to state, you must:

• Send certified mail to last known address
• Check related plan records, emergency contacts
• Check public records (LexisNexis, etc.)
• Try email/phone
• Document everything

5. Forced IRA Rollovers for Balances $1k-$7k (SECURE 2.0 changed from $5k)
If participant doesn’t respond and balance is $1,000-$7,000, you must roll to automatic IRA at a provider like Inspira or Millennium Trust. You cannot just keep it in plan forever. Fees must be reasonable.

If balance is under $1,000, you can cash out with 20% withholding and send check, then eventually escheat to state unclaimed property if check uncashed.

If balance is over $7,000, you generally cannot force out without consent – must leave in plan until participant elects, OR if plan document allows, you can still force to IRA if participant is missing after diligent search.

6. File Final Form 5500 and 8955-SSA
Check box “final return” and file Form 8955-SSA showing separated participants with deferred vested benefits.

7. Formally Resign as Fiduciary – This Is What I Didn’t Do Perfectly
File corporate resolution resigning as Plan Administrator, appoint successor or show no successor because plan is terminated and assets $0. Notify recordkeeper/brokerage in writing. Keep proof. I actually don’t think I was ever trustee-but since there wasn’t one and I was CFO I was contacted.

8. Keep Records 7 Years Minimum
ERISA 107 requires 6 years, but keep 7+ years: census, distribution elections, proof of mailings, IRA rollover confirmations, final 5500. That’s what saved me – the investment bank had to dig through backup/archive files to prove a negative – that employee never filled out paperwork.

Who Is Liable When Former Employee Reappears Years Later?

In my case, employee was on census for testing purposes but never actually enrolled. Company had reported him for coverage testing under IRC 410(b), but he never filled out enrollment form.

That is common for $10/hour manual labor jobs – employee elects not to defer because they need $8/hour after tax to cover expenses. Plan document says eligible, but participation is voluntary.

When he reappeared 17 years later asking for $1,000:

• Brokerage: Has record of who actually has balance. They showed $0 for him.
• Plan Administrator (me, former de facto fiduciary): Has duty to respond and provide accounting, but not to pay imaginary balance.
• Former Employer: If business closed, successor fiduciary or owner still has duty to maintain records.

If you can’t prove a negative, you can be sued for breach of fiduciary duty under ERISA 409. Defense costs $10k-$25k even if you win. That’s why documentation matters.

Lessons Learned: How to Not Be Fiduciary Forever

1. Never agree to be fiduciary if you are not on-site owner or majority owner. Especially if you are out-of-state CPA. You will be tracked down for decades.
2. If you are fiduciary, terminate properly and document resignation. Don’t just stop filing 5500.
3. Use a 3(16) Fiduciary Administrator service when closing – they take over as Plan Administrator for $1,500-$3,000 and handle missing participant search and final filings. Worth every penny.
4. For owners: Don’t put people on census who never enrolled. Distinguish eligible vs participating. Keep enrollment forms.
5. For employees: If you had a 401k 10 years ago, check. Balances don’t disappear. Check National Registry of Unclaimed Retirement Benefits (unclaimedretirementbenefits.com) and your state’s unclaimed property.

As a CFO Expert Witness, I am often hired in cases where former fiduciaries are sued for missing 401k balances. The difference between winning and losing is whether they followed the 8-step termination checklist above.

If you are closing a business with a 401k in Fremont or California, or you got a letter from a former employee asking about a 401k from years ago, contact me at hpaccounting.com. I can help with final Form 5500, missing participant search, and fiduciary resignation documentation.