New or Succesor plan?

[Guest WWPDRC]

Prospect is currently a participating employer in a 401(k) plan sponsored by Paychex. Only contributions being made are employee deferrals. Client wishes to terminate their relationship with Paychex and adopt there own 401(k) plan with a safe harbor feature. Would this new plan be considered a new plan or a succesor plan and would they be able to adopt a safe harbor formula for the balance of the 2006 plan year? Thanks in advance for any input.

[rcline46]

It would neither be a new or a successor plan. It would just be an 'upgrade' of the paychex plan, with a new service provider and new assets. The assets would be transferred from the paychex funds to the new funds.

[Nate X]

I would think that the IRS would treat this as a successor plan for Safe Harbor purposes. This would be consistent with IRS Notice 98-1.

From IRS Notice 98-1:

For purposes of this notice, a plan is a "successor plan" if 50% or more of the eligible employees for the first plan year were eligible employees under another section 401(k) plan (or section 401(m) plan, as applicable) maintained by the employer in the prior year.

[R. Butler]

I think rcline is saying that you really don't have a new 401(k) plan. It seems that really what the client is doing is firing Paychex and hiring a new adminsitrator. They will amend out of the Paychex document into a different document. If rcline (& myself) are understanding the post correctly its just a continuation of the old plan.

[Guest WWPDRC]

Thank you for your input. I understand this being a continuance of their existing plan with Paychex, however, for filing and reporting purposes would I reflect the plan number as 001 for document and 5500 purposes? Also would the effective date be the date that the new document is effective or would it be the date that the client adopted the Paychex plan or the date that the Paychex plan was effective?

[Guest dbvail]

If my belief is correct (and it agrees with the others) this is not a new plan at all, just a restructuring of the existing plan. As such, use the same plan ID, original effective dates etc. This is not unommon, at least to us.

[Guest WWPDRC]

If my belief is correct (and it agrees with the others) this is not a new plan at all, just a restructuring of the existing plan. As such, use the same plan ID, original effective dates etc. This is not unommon, at least to us.

I understand what you're saying, but wouldn't this raise questions when the 5500 is filed for the restructured plan reflecting a plan sponsor name and id number that has not previously been reported to the IRS. Or would this be crossed referenced by the schedule T that was filed by Paychex for this particular employer?

[Guest dbvail]

Now I'm confused. Schedule T is used for Multiple Employer Plans. I thought this was just a single employer who happened to use the Paychex Prototype for their plan. But even so, it is still the plan of the employer, and they can amend-restate etc at their will. Even if they are part of a PEO. So, I would consider this nothing more than a paln update and a change of funding sources - not in anyway appraoching the status of successor plan. Any thoughts?