401(k) Termination and Successor Plan

[Guest JDL]

If anyone could provide insight with the following situation, I would greatly appreciate it.

I have a client who currently sponsors two 401(k) plans (Plan A and Plan b). At the beginning of this year, all participant/employees in Plan A changed over and began participating in Plan B, although their account balances in Plan A remain in that plan. The plan sponsor would now like to transfer the balances of the active employees from Plan A over to Plan B, and then terminate Plan A and pay-out the terminated employees who had vested interests in Plan A. Of course, Reg 1.401(k)-1(d)(3) doesn't allow distribution of 401(k) contributions if there is a successor plan (which there is in this case). However, as the terminated employees could have received their distributions upon their severance from employment, can the plan sponsor now force those terminated employees to receive their distributions, without violating the successor plan rule, while at the same time transferring the accounts of the active employees to Plan B? Thanks.

[RTK]

Your client can transfer the active participant accounts from Plan A to Plan B. The usual transfer rules would apply, e.g. section 411(d)(6) beneits must be preserved unless exception applies.

Termination of Plan B would not permit your client to force distributions to all terminated employees, absent some exception such as $5,000 cash out limit. See Reg. 1.411(a)-11(e)(1).

[Guest JDL]

Thanks for your help!