Replacement Plan

[Gary]

A company sponsors a 401k plan.

They want to terminate their current plan and distribute plan assets.

Is there a time frame (eg. 12 months) before they can implement a new plan?

Does anyone know a specific citation on t his issue?

Thanks.

[J Simmons]

Treas Reg § 1.401(k)-1(d)(4)(i) provides, in relevant part, that

A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term "employer" contained in §1.401(k)-6 is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the 24-month period beginning 12 months before the date of plan termination, fewer than 2% of the employees who were eligible under the defined contribution plan that includes the cash or deferred arrangement as of the date of plan termination are eligible under the other defined contribution plan, the other plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not treated as an alternative defined contribution plan if it is an employee stock ownership plan as defined in section 4975(e)(7) or 409(a), a simplified employee pension as defined in section 408(k), a SIMPLE IRA plan as defined in section 408(p), a plan or contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) or (f).

[Guest L337pwner5]

In addition to the distribution restrictions cited by J Simmons, if the plan sponsor is terminating the plan with the intention of setting up a new plan, you should probably also make sure you don't run afoul of the plan permanence requirement in 1.401-1(b)(2). If the existing plan has been in effect for more than ten years, this probably won't be a problem. However, terminating an existing plan while intending to set up a new plan as soon as possible seems to raise some additional red flags for an impermissible reversion of plan assets.