Can you revoke termination of a 401(k) plan?

[Guest APensionGuy]

I deal primarily in DB plans, and am getting more experience in the DC area, so I always like to double check things I can't find in writing.

We have a potential new client that had a safe harbor 401k. I think that due to his lack of education on how the plan worked, he got frustrated with his TPA and adopted a resolution to terminate the plan in May 2007. As I understand it, none of the participants have made distribution elections yet, though they were notified of the plan termination.

To add confusion to the mix, the client has a new financial advisor who thinks the plan is a good deal for him, and would like to salvage it if possible.

In a 401(k), can you simply adopt another resolution revoking the termination provided that the participants remain 100% vested? Anyone know where I can obtain more information?

Thanks!

[John Feldt ERPA CPC QPA]

Yes, I believe you can adopt a resolution to rescind the prior termination. You are correct that any amendment that was made, such as making existing participants 100% vested, would still apply. You may want to make an effective date (or a special effective date) for deferrals to begin again. I don't think you'll get a free pass on ADP or ACP for the year since deferrals got stopped when the plan terminated. I'm sure there are other considerations that I have left off, let's see if anyone else has a comment.

[Bird]

I agree that you could un-do a termination. I don't think there's a cite or anything but as long as you haven't distributed assets it should be able to be undone. As noted, potential messiness with ADP/ACP testing and 100% vesting.

[Belgarath]

I've wondered about this on occasion, but never really investigated. At what point is a recission no longer viable? For example, if participants have made distribution elections, but distributions haven't been made, can you still rescind, or would it be a cutback? Seems to me that there has to be some limitation. I would not want to attempt it if distribution elections had already been signed, (unless client's ERISA attorney opined otherwise) but perhaps I'm unnecessarily conservative on the issue.  

[Slider]

Adopting a resolution in 2007 and not making distributions seem to be problematic. The plan might not be considered terminated. Have they been filing 5500s each year? Have they kept the plan updated for changes in the law?

Under Revenue Ruling 89-87:  

A pension, profit-sharing or stock bonus plan, under which benefit accruals have ceased, is not terminated if, after an amendment is adopted to terminate the plan, the plan assets are not distributed as soon as administratively feasible but are held in the trust which remains in existence in order to make distributions when employees become entitled to receive payments as provided under the terms of the plan as they exist when the amendment is adopted. 

[Bill Presson]

35 minutes ago, Slider said:

Adopting a resolution in 2007 and not making distributions seem to be problematic. The plan might not be considered terminated. Have they been filing 5500s each year? Have they kept the plan updated for changes in the law? 

Belgarath resurrected an old thread. He isn't talking about the same plan.

[Belgarath]

Yeah, sorry, I should have specified that. I'm looking at this in general terms.