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Terminating Safe Harbor 410(k) Plan Mid year - Retain SH status?


Lou S.
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If we have a client with SH 401(k) Plan selling his practice in an asset sale. He will terminate all employees effective with sale and those employees will be hired by the acquiring company. His corporation will retain the Plan and he wishes to terminate the Plan and the corporation as a result of the asset sale. The corporation will only exist for wrapping up any accounts receivables, the 401(k) Plan, and other administrative items.  At this time he does not wish to make any additional employer contributions - other than the required ones for deferral and SH match through date of sale.

Does this generally meet the exception to the 12 month rule where the plan can be less than 12 months as a result of the business transaction and retain it's status as a SH 401(k) plan?

Does the answer change if the termination is done before, concurrent with, or after the transaction? Assuming it is done contingent on the sale going through if done before or concurrent with.

I know he can clearly retain SH status if the plan runs through 12/31 for a full 12 months but he would like the option to terminate sooner without ADP/ACP testing and this would seem to me at least to be on account of a business transaction.

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