We have a sole prop client that incorported mid plan year - same employees. His plan is a safe harbor 401k with profit sharing. I know amendments to the plan are needed - new plan sponsor, tax id. Would you also include an amendment for the prior service under the old plan sponsor? Anything else I am missing?

Also, how would you handle calculating the contribution for the year for the owner?

Thanks for any help with this.

Do the plan doc's automatically include employees of employers that are in a control group with the specified plan sponsor (i.e., the sole proprietorship)? If not, then the wages paid from the corporation do not count for last year. Just the wages paid to employees from the sole proprietor and the self-employment earnings of the sole proprietor.

I think that service with the sole proprietor will count without the need for an amendment as that would be service with the sole proprietorship while it was the sponsoring employer, both for eligibility and vesting purposes.

I'd be more concerned with amendments naming the corporation as the successor employer and successor trustor. Also, you may need to specify a new plan administrator if the sole proprietor was named as such if you want it to be the corporate employer rather than the owner.

Did the business get a new EIN? A sole proprietorship is required to have a new EIN when it incorporates. I mention this rule because it's often overlooked.

Just a thought - you might simply name the new business as an adopting employer for now, and then when you restate in the next year or two, name the new employer as the sponsor and give credit with the prior entity. I've found it somewhat of a nuisance to try to ferret out all of the references to the "employer" when doing an amendment, or more particularly, the SMM or SPD.

As far as allocating the contribution - do the best you can, probably pro-rating the compensation from both entities.

Lori - yes the business obtained a new EIN.

Bird - good idea and the doc does allow adoption by other employers.

Thanks for your input.