Sole proprietor incorporates - does this mean plan must terminate?

[Guest amfam2]

Now that tax season is over, I am receiving calls from clients who are being given the following tax advice from their advisors:

"Now that you are incorporating from a sole proprietorship into an S-Corp, you are REQUIRED to terminate your existing profit sharing plans and reestablish a new one in its place."

I am not aware of any requirement that an employer must terminate their qualified plan simply because they may have changed their type of business organization. I have been viewing these types of changes as more like mergers where if you have the same business, same assets, same employees, etc, you could amend & restate the plan with the information of the new employer (and note the predecessor employer).

Your thoughts?

[Mike Preston]

Geez, I don't see why a simple amendment to replace the plan sponsor doesn't accomplish what you want. Why do a complete amendment and restatement? At the most, one makes the plan sponsor the corp and has the sole proprieor maintain a form of sponsorship by designation as an adopting employer.

However, mayber there are other reasons why this advisor has suggested the old plan be replaced rather than amended? Are there some skeletons in the closet?

[Guest amfam2]

Actually, normally we would simply prepare an amendment.

These days I'm in my GUST restatement mode, & I've had a lot of clients revisiting certain plan provisions..... so I'm used to saying "we'll include it in the restatement...."