Draper55

If a plan terminates late in a calendar year and there is overfunding and the goal is to transfer 25% to a QRP and revert the balance to the employer, must everything occur in the same taxable year? Can the transfer and/or the reversion be spread across 2024 and 2025? Could the required 25% be spread across two years?..would this create two seven year clocks? Could the reversion be spread across the two years? A little simpler, can the transfer happen entirely in 2024 and the reversion entirely in 2025?

Thanks for the comments. My preference is to not rescind the termination due to potential legalities and me not wanting to practice law as a non attorney. However, they will have to wait 12 months I believe to put in a replacement plan. This causes some difficulty with a delay in doing a 4980 transfer from the terminated defined befit plan. While the 100% vesting could remain, as RBG points out, the opportunity to distribute say safe harbor contributions on other than a hardship distribution is lost and this could not be brought back if the plan were ongoing. I had anticipated QNECs to cover the lost deferral opportunity and the missed safe harbor contributions retroactive to the date of plan termination.

If a plan sponsor wants to undo a plan termination, is the 100% vesting that was stated in the resolution to terminate also reversible? The resolution is not a plan amendment and hence the plan document has not been modified. I am thinking that if the termination resolution stated that all benefits were vested as of the termination date and subsequently a resolution is executed to nullify the plan termination the 100% vesting could be reversed as well. The plan vesting schedule was never amended. I would think certainly benefits accrued after the termination date could be subject to the vesting schedule going forward. Any thoughts on this?

Try calling Andy Powell at 727-488-3338;he is a Florida attorney who is familiar with these transactions...

Does the assumed 3% missed deferral apply to both HCEs and NHCEs in a 3% nonelective safe harbor 401(k) plan. I believe it does so that for the period of exclusion the HCE would get .5*3%=1.5% QNEC but of course not receive the 3% safe harbor contribution since not an NHCE.

I believe so but you must back the QNEC for the missed deferral out of the otherwise applicable plan or 402(g) limit for the year..

The ability to take loans as needed in addition to the potential additional creditor protection could justify the maintenance. Further, the ability to make a wider array of investments subject to the trust agreement could also be a motivating force.

John...do you think it is a brother sister controlled group?...I am not sure why it would not be; 80% control of both entities and a controlling interest of both entities when considering identical ownership..

An individual is a sole proprietor and also is a partner in a partnership with 51% ownership and one other partner at 49%. I think this is a brother sister controlled group. Does this mean that the minority partner must be covered in the defined benefit plan of the sole proprietor to satisfy the 2 participant floor of 401(a)(26) considering the controlled group? If so, could a solution be for the spouse to become a W-2 employee of the sole proprietor and then cover the spouse to satisfy 401(a)(26)?

If an individual has two plans, a 401(k) and a defined benefit plan, and the defined benefit plan exceeds $250,000 in assets, but the 401(k) has not been funded, is it required to file a Form 5500-EZ for the 401(k) showing one participant and $0 in assets?

Client directs me earlier this year to terminate their cash balance and safe harbor(3% nonelective) 401(K) plan due to a business decline. Appropriate resolutions,notices etc. were done. Subsequently, business improves, and they decide to still have a 401(k) plan and only proceed to terminate the cash balance plan. Small business 401(k) with owner and about 10 employees. No deferrals were made prior to the 401k plan termination. Wondering if anyone has done a 401k pan termination/nullification and what are the issues..Perhaps it is best to just proceed with the termination and start a new 401(k) in 2025; however, the successor plan rules could be an issue. If we restart the terminated plan, I am thinking the HCEs should not defer anything for 2024 and hence not require the safe harbor to satisfy the ADP. It would then be up to the sponsor to decide whether to give say 3% to the employees for the entire year or not since it would not really be a safe harbor plan for 2024..Any thoughts?

I agree with Lou. You can't make a 2024 contribution in 2023. It is too late to be a 2022 contribution...It must be a 2023 contribution and go on the 2023 5500 and SB.

I agree with the comments here. Practically if the sponsor is broke what is the solution? As the sponsor is also the Trustee, is it not reasonable as Trustee to write off the contribution receivable as uncollectible so that the plan and the associated filings can actually end? My understanding is that the IRS cannot waive the first tier 4971 tax but not necessarily the 100% tax. Could the 10% 4971 tax be paid and call it a day without making the final unpaid minimum? It is an owner only and spouse plan.

It is a owner and spouse only so whether they make the final contribution is not certain. They will need to pay the excise tax though. It is interesting that the 430 regs state the plan year for 430 purposes ends on the plan termination date. Since it further states that final quarterly is due 15 days after that date, one would assume the final minimum is due 8.5 months from the plan termination date which will likely be disconnected from the 5500 filing timeline.

Very good point..note the prior year contribution was not made as well(excise tax paid though) ..hence if they do not make the final contribution(s) the plan year ends on the date of the distribution in mid November2023 and the 2023 5500 is the final 5500 due on extension 9/15/2024. if the outstanding contributions are made...then the plan year end is 12/31/2023 and the contribution due date becomes 9/15/2024 and the final 5500 is for 2024...