Deferral of bonus compensation after plan termination

[Guest wolfpack]

Company A is to be acquired by company B effective 10-1. Company A is going to terminate their 401(k) effective 9-30. The 401(k) plan allows participants to defer a portion of their year end bonus(within 2 1/2 months after plan year end)which would be paid in November. If the plan is terminated 9-30 can the participant's bonuses be deferred if they execute the deferral agreement before termination since the bonuses are attributable to services during the plan year? Or, would the plan have to remain active to have this option? Thanks

[Kathy]

I don't think there is any way to defer income earned after the termination date of the plan, even if the election is signed before hand. Furthermore, there are sometimes good reasons to terminate the plan before the new company takes over - different distribution rules kick in so keeping the plan active may not be advantageous either.

[Kirk Maldonado]

The IRS takes the position that participants cannot defer amounts out of severance pay, because they are no longer employees. I think that this situation is comparable, and the IRS would similarly disallow contributions after the plan termination date.

[Guest wolfpack]

What if the Employer wants to make a final Profit Sharing contribution? Can they do a resolution declaring the amount but not fund until sometime after the termination date stated in the plan termination resolution?