Last Man Standing

[DTH]

I have an ERISA 401(k) plan where all the employees have terminated employment and only the owner is left. Some of the terminated employees with account balances over $5,000 want to keep their money in the plan and the owner still wants to continue contributing.

Can an ERISA 401(k) plan still exist with only one employee who is the owner?

If not, must the plan be terminated?

If yes, can he still contribute? The plan has a discretionary match and profit shaing contribution, can the employer (himself) contribute those too?

Thanks.

[Mike Preston]

When you say "I have" can you clarify? What is your role?

[WDIK]

Can an ERISA 401(k) plan still exist with only one employee who is the owner?

Yes.

If yes, can he still contribute?

Yes.

The plan has a discretionary match and profit shaing contribution, can the employer (himself) contribute those too?

Yes.

[Guest mjb]

Without making this answer too complicated the owner can terminate the plan, establish a PS or SEP type plan and contribute either 20% or 25% of comp to the plan and get the same maximum contribution of 45,000 that he could make in a 401k plan if he is under 50. He could rollover his account balance from the terminated plan to his new plan. If he is over 50 he would benefit from retaining the 401k plan b/c he could contribute an additional 5000 over the 45,000 DC limit but he would have to allow the account balances of terminated participants that exceed $5,000 to remain in the plan, althoug he could charge them account maintence fees.

To answer your Q a 401k plan can have only one participant and the owner can make both employer contributions and salary reduction contributions up to the above amounts.

[austin3515]

Also, if the owner earns less than $180,000 (45,000 / .25) then he'll be able to save more under a 401(k) plan, because of course 401(k) is not subject to the 25% deduction limit.

[pmacduff]

mjb - why would the owner necessarily want to terminate the plan? If he has terminated participants w/bals over $5,000 who want to leave their balances in the Plan and it sounds (from the original post) that the owner doesn't mind if they leave their balances. The OP doesn't say what has happened to the Plan Sponsor...is the owner maintaining that entity?

Anyway, I would think it would save the owner some $$ to keep this plan, if possible, and simply amend to have the provisions he wants. Perhaps his plan already allows for a discretionary profit share that he wasn't utilizing.

My 2 cents....

[Archimage]

I believe by terminating the plan he can reduce his yearly administrative costs for doing the 5500, etc.

[pmacduff]

yes, but mjb mentioned to "terminate the plan, establish a PS or SEP type plan and contribute..." I was just noting why would the owner terminate the plan and start a new one, when he can amend and utilize the plan he has?

[Archimage]

Maybe I am missing something but if you can save $5,000 in fees (or whatever the fees are) and still get the same contribution, why wouldn't you terminate the plan?