Preparing for the Silver Tsunami: What Happens to Company 401(k) Plans?

By the year 2030, all 73 million Baby Boomers will have reached age 65, only 4 years from now. This is the demographic shift, often called the “Silver Tsunami” or “Peak 65”, which corresponds with the time the Baby Boomers are reaching retirement age. As this generation of business owners move toward retirement, most of the conversation centers on how they will fund their after-career phase. But the demographic shift also impacts the millions of employees who depend on employer-sponsored retirement plans – especially in the 2.3 million U.S. businesses owned by Baby Boomers.

For many workers, the employer-sponsored retirement plan is their primary savings vehicle. When a company owner retires, especially if the business is sold, transitions or ceases operations, those retirement plans can change in ways employees may not anticipate. Ownership changes can also trigger ERISA-related compliance matters that must be addressed, such as plan amendments, updated service provider agreements and potential plan terminations.

Business Ownership and Retirement Benefits

In many small and mid-sized businesses, the owner plays a direct role in sponsoring, funding and overseeing the company’s 401(k) plan. Their devotion to the business often extends to maintaining a competitive benefits package, which can include employer contributions such as a match and/or profit share. When a Baby Boomer owner retires, the future of that 401(k) plan can become unclear, particularly if there is no family successor or clear transition plan in place.

If the Business Is Sold

A sale does not automatically mean the end of the 401(k) plan, but it can change significantly. A new owner may:

Reduce or eliminate employer matching contributions
Replace the existing plan with a different one
Change investment options or plan providers
Alter vesting schedules or eligibility requirements
For employees, this can mean interruption, doubt or even reduced retirement savings over time. The type of business sale (asset vs. stock), can drastically change how the retirement plan is managed

New Company Owners – Merger/Acquisition

When a business is acquired or merged, the transaction can have significant implications for 401(k) plan compliance because the plan sponsor, structure or assets may change. The new employer must determine whether to maintain the existing plan, merge it with another plan or terminate it, all of which trigger specific fiduciary, reporting and operational requirements as noted above. Issues such as eligibility rules, vesting schedules, plan assets, nondiscrimination testing and timely transfer of contributions must be carefully managed to avoid violations. As a result, companies typically conduct due diligence and coordinate with legal, tax and plan administrators to ensure a smooth transition that remains compliant with ERISA and IRS regulations.

If the Business Operations Cease

If no buyer is found and the business operations cease, the company-sponsored 401(k) plan is forced to terminate and distribute participant assets. Employees must then decide what to do with their savings, such as:

Rolling over their balance into a new employer’s plan
Rolling their funds into an Individual Retirement Account (IRA)
Cashing out (which would trigger taxes and penalties)

While employees still own their account balance, the loss of future employer contributions can have a major impact on long-term retirement planning.

What Employers Can Do to Protect Their 401(k) Plans

To minimize disruption, retiring owners and their advisors can take proactive steps that benefit both the business and its employees, such as:

Creating a formal succession or transition plan that includes the retirement plan
Communicating clearly with employees about potential changes
Structuring business sales to preserve existing benefits where possible
Notifying and working with plan administrators and service providers to ensure smooth transitions
If a merger or acquisition is planned, consult with an ERISA attorney to ensure proper transition for governance purposes

A Retirement Transition That Affects More Than Just Owners

While much attention is placed on how Baby Boomer retirements impact business owners themselves, the reality is that their decisions move outward—particularly through employer-sponsored 401(k) plans.

As the Silver Tsunami continues, now is the time for organizations to review their 401(k) governance, succession plans and transition strategies. With careful proactive planning and communication both owners and employees can move into the next phase with confidence.