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To answer your question, yes, there would be a successor plan - and the issue is as Tom points out - the establishment of a successor plan (withing the 24 month period beginning 12 months before the plan termination and ending 12 months after) would mean there would not be a "distributeable event" from the terminated plan for any of it's participants. That would leave two options - 1) maintain the existing plan (and any evil it contains - which in my mind would be the only reason to consider it's termination); or 2) merge the plan into the new one (which would merge the evil into the new plan, tainting it). Now, you arguably could give participants the option of leaving balances in the old plan or "rolling over" to the new plan (but not taking a distribution), but in effect, that is a "partial" merger of assets which a good lawyer could/would argue taints the new plan as much as a complete merger. My recommendation: If there is a problem with the existing plan - FIX IT. Everything can be fixed - the only variable is the time and money it takes - but IF ITS BROKEN, IT NEEDS TO BE FIXED. Then, don't worry about "termination" and new plan set up and successor plan issues....

In a stock acquisition where the buyer is an existing business with its own 401k plan it is almost always standard operating procedure to require the target's plan to be terminated prior to closing. This is not that scenario, however. I see two possible explanations here. (1) The advisor is very green and not able to draw this distinction; or (2) there are in fact lots of problems with the plan and it is felt that this is an opportunity to stop the bleeding and allow the statute of limitations period clock to run, while at the same time starting up a fresh and clean new plan.

My experiences advising those who administer troubled plans are like BG5150’s observation. A few years ago, submitting a .pdf in the slot for an independent qualified public accountant’s report got a helpful lag. In the past two years, the file-or-else letter comes noticeably quicker than before. Don’t expect the Labor department to excuse an audit with no more explanation than that the plan trust lacks money to pay the CPA firm’s fee. If your client is or includes a fiduciary who decided that the plan’s trust would pay or deliver final distributions without setting aside a reserve for plan-administration expenses, consider whether each fiduciary wants his, her, or its lawyer’s advice about whether so deciding breached the fiduciary’s responsibility, and whether the fiduciary might be liable to restore the plan’s assets as needed to meet the plan’s expenses. If you are a service provider that would draft a Form 5500 report on 2016, consider whether the plan paid your fees or what advance retainer you might require before you commit to a service.

Well 33.33% is a great return on investment

but the potential return for the plaintiffs' attorneys..... isn't that what this is really about?