Freezing a 401k Plan

[pixmax]

A client would like to freeze their Plan instead of terminating it so that participants can continue to pay back loans. Would service for vesting also freeze? Can the employer unfreeze the Plan at a later date if they decided that the company will not go out of business? If so, how do you unfreeze a Plan.

[rcline46]

I have never understood freezing a 401(k) plan. Why would one want to prevent the employees from contributing, especially if you are letting them pay back loans? Ceasing matching contributons or other employer contributions I understand, but deferrals do not cost the employer anything.

Vesting cannot be frozen ever. And if the plan were to terminate everyone is fully vested any way.

[Guest Sieve]

Ceasing to make contributions is considered a full-vesting event, and is the same as termination. 2 or 3 years without any contributions is sufficient for that event to occur, and the termiantin is treated as occurring at the end of the year following the last year with respect to which a substantial contribution was made. (Treas. Reg. Sections 1.401-6(a)(1) & ©.)

[pixmax]

Ceasing to make contributions is considered a full-vesting event, and is the same as termination. 2 or 3 years without any contributions is sufficient for that event to occur, and the termiantin is treated as occurring at the end of the year following the last year with respect to which a substantial contribution was made. (Treas. Reg. Sections 1.401-6(a)(1) & ©.)

The client wants the participants to be able to pay on their loans, therefore ceasing the contributions and freezing the Plan. If he terminates the Plan then the loans would become taxable.

[david rigby]

If it's a k-only plan (no ER contributions), then vesting is irrelevant to the discussion.

However, if it's k-only, what is the advantage (other than possible savings on admin fees) to a freeze?

[Guest Sieve]

I understand that from your 1st post. I'm simply giving you one of the potential consequences of such an action if there are employer contributions subject to a vesting schedule.