Termination of 401k

[chris]

Calendar year safe harbor 401k (3% qnec) to be terminated as of 12/31/06. Plan is a volume submitter doc relying on an opinion letter of the vol. sub. prac. Client plans to submit 5310 to IRS. As part of termination amendment, document to be amended at contributions section to 1) discontinue elective deferrals for all plan years beginning after 12/31/06 and 2) state that no safe harbor contirbution will be made by employer for plan years beginning after 12/31/06. Without such amendment the document clearly states that "For all plan years after ...2001, the Employer shall contribute a safe harbor contribution equal to 3%......." and would appear to be a continuing obligation under the plan doc. Since client is submitting 5310 the IRS will review the language of the amendment, there would be no issue here re document compliance. BUT if client were not going the 5310 route, then amendment of the plan doc. language would negate reliance on the opinion letter issued to the volume submitter practitioner. Thus, would it not almost always be a given that a 5310 would be submitted to get the IRS' blessing on the document's compliance?

[Bird]

I've always thought that an amendment that uses pre-approved language could still rely on the VS letter. It appears that you are simply replacing one set of permitted text with another such set (or sets) which to my way of thinking is ok.

Having said that, it's always recommended to submit a 5310.

[Guest Pensions in Paradise]

Just curious, but if you are terminating the plan, why do you need to amend the plan to remove the contribution provisions? The termination itself ceases all contributions.

[chris]

B/c I have had e/er's/plan sponsors in the past that did not get all assets out w/i 1 year of termination and one of them got audited and the agent treated it as an ongoing plan and demanded the contribution as set forth in the doc. As you probably know, clients do not always do what you tell them.

[Guest Pensions in Paradise]

Good point. I didn't think of that issue because in our termination resolutions we also freeze the plan as of the date of termination.