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401(a)(26) with no ees

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Business closed in 2020. Plan to be terminated in 2021. No employees in 2021. Since there are no nonexcludables I would think the plan should pass 401(a)(26). However, since the 2 employees minimum  goes to one if only one employee, does that imply that one  goes to zero if there are no employees. An ancillary question is  can an overfunded   plan be maintained in a retiree only mode if the sponsor remains in existence with no employees.

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Don't over think it.  

Plan cannot exist without a sponsor (although sometimes they do).  Part of winding down the business is terminating the plan.  If a retiree remains, the plan will need to purchase an annuity before it can terminate.  Yes, sometimes sponsors remain in existence with no employees simply to maintain the plan, but it generally isn't the best way to proceed.  What happens if/when the sole owner of the sponsor dies? What if the plan requires a contribution at some point in the future - where does the money come from?

If the plan is overfunded, the plan document will define what to do with the excess assets.  They either revert to the company (big excise tax), or they will be reallocated to existing participants.  If they are reallocated, that allocation must be non-discriminatory.  They can also be transferred to a successor plan, but since the sponsor has no employees, that isn't a viable option.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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