can employer terminate and sponsor another plan within 12 month period?

[k man]

i say there is nothing in the code that prohibits company's from terminating one 401(k) plan and starting another 401(k) plan in the same year. i have some "old timers" in my office that seem to recall something that may have prohibited this in the past. i have told them the only restrictions are the successor plan rules which place restrictions on distributions. can anyone confirm that my opinion is correct?

[Mike Preston]

As long as the first k plan is not going to allow distributions upon plan termination, I'm not aware of anything that would preclude a plan sponsor from effectively stopping deferrals into one plan and then starting a new plan to take new deferrals.

I've seen this happen most frequently when the plan sponsor has a contract with a financial provider that has significant charges for moving accumulated assets and no flexibility to provide multiple investment options within the plan.

[Belgarath]

I'm a bit confused - how, in an actual plan termination, can the plan fail to allow a distribution? If the plan is merging, then fine, no distributions and no successor plan rules. But if the first plan is actually terminated, then even if the partipants elect to do a direct rollover to the new plan, it is still a "distribution" - albeit nontaxable - from the original plan, and the successor plan rules apply. I think the old timers are right. I believe 410(k)(2)(B) and 401(k)(10)(A) support their position.

I also agree with Mike that there shouldn't be anything prohibiting establishing a new plan, and simply stopping deferrals in the old plan.

[k man]

then the answer is not a termination per se. just start the new plan and merge the old one into the new one.