Do we need a brand new plan?

[Guest pjb]

Employer has a 401k/PS plan and starts up another business. He wants to amend the plan to:

. make the new business the sponsor employer and the old business a participating employer

. change the name of the plan to refer to the new business

. remove the 401(k) and match feature

. add a vesting schedule to the profit sharing

. add eligibility requirements

. add a cross testing allocation for the profit sharing

Does anyone see a need to start-up a new plan?

[401 Chaos]

PJB, not clear that you have to do a new plan but with all the structure changes sounds like you may want to. If the profit sharing piece didn't have a vesting schedule before and the you definitely are doing away with the match I would think everybody is going to have to be fully vested in old amounts so forfeitures / vesting isn't really an issue either route. Although terminating old plan would be a distribution event, it just sounds to me like it might be better to make a clean break even if you could keep the existing plan.

[david rigby]

Disagree. The facts given do not lend themselves to starting a new plan. Competent ERISA attorney should have no trouble modifying the exisitng plan document.

There may be other business-related reasons to freeze the current plan. Discussion with attorney and/or pension consultant may be fruitful. Unlikely that plan termination is needed.

[401 Chaos]

Pax, thanks for your response. I did not mean to suggest that they legally could not amend the plan to accomplish what they desire, just that the number and variety of changes make it a complicated matter that can lead to problems if not done correctly. I agree with your advice that they seek professional legal assistance to handle this. I have, unfortunately, seen situations where plan sponsors attempt to make mass changes without professional help by virtue of amending and restating prototype or volume submitter plans and end up in a bigger mess than if they had terminated the initial plan and started over with a fresh plan.

[GBurns]

Because the original post uses terms such as "starts up another business" and wants to make "the old business a participating employer", I read this to mean that the poster is not considering any sort of termination of the initial plan, but instead is contemplating what seems to be a plan with 2 participating employers that are under common ownership with 2 different sets of participating employees.

Is this what you meant pjb?

[Guest pjb]

Yes, if we were to amend, the result would be two participating employers. But, he wants the plan sponsor to change to the new employer and have a different plan name, which changes the employer for 5500 reporting, determination letter requests. Given this and the fact that the plan type will change to just a profit sharing plan, I was unsure whether we need to terminate the 401(k) plan and start-up a new plan. I don't think this client wants a distributable event though. So, I guess we'd need to merge the plans.

[Blinky the 3-eyed Fish]

One argument for starting a new plan is that the participants with 3 years of service will have the right to stay under the old vesting schedule.