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401(k) Plan w/ 2 participating ERs Disolving


Guest RetireFast
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Guest RetireFast

2 Professional Service Corporations (single owner in each - ER 1 and ER 2) have formed ABC Company and have adopted ABC 401(k) Plan...1 plan/2 participating employers...

ER 1 and ER 2 have split and would like to disolve ABC Company; however, ER 1 would like to continue sponsoring a 401(k) Plan while ER 2 would like to adopt a SIMPLE 401(k). Can ER 2 adopt SIMPLE 401(k) Plan in the same year...?

Any other information would be helpful...

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  • 3 weeks later...

Employer 1 could adopt the plan of the ABC company and continue with the 401(k). Other changes may be needed, like designating the plan administrator.

Employer 2 never had a plan; it was the plan of the ABC Company (right?) covering the employees of the 2 entities. If 50/50 ownership, it would not appear that that any of the three entities are related, controlled, or affilliated. If either partner had more than a 50% interest, then code section 415(h) would apply. If 80% or more, then there could be problems.

Assuming entiries not related, then the exclusive plan rule would not apply.

In some cases, service with a predesessor employer needs to be counted, see IRC 414.

Keep in mind that elective limits are also applied individually (in addition to being plan limits).

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