Can you have 2 profit sharing plans under 1 employer, both of which co

[MWeddell]

The short answer is yes, you can have two profit sharing plans covering the same employees. One sometimes sees a variation of this to sort of get around the 401(a)(17) on compensation which applies to each plan.

However, having two 401(k) plans (or qualified cash or deferred arrangements within profit sharing plans, to be technically precise) leads to some rather punitive testing results. HCE deferrals to both plans are counted in each plan's 401(k) but only NHCE deferrals to that particular plan counts against that plan's test. There's a parallel rule for 401(m) testing I believe.

I think what you want is to freeze one plan and start up a new plan. As long as this occurs at the same time as the plan year end, the above rule won't mess up your plans.

[Guest Jimmy B]

Here's the situation: a client currently maintains a 401(k) plan, but wants out of it because he doesn't like where his money is invested but can't move investments for 7 years without being penalized. He wants to know if he can start another 401(k) plan on top of the one he already has. Basically, can you have 2 profit sharing plans under 1 employer, both of which cover all employees?

[Alan Simpson]

If the recordkeeper can handle the accounting of the funds from more than one source why not just stop contributions from going into the "old" funds and just put them in the "new" funds. You could also give each EE the option of transferring their portion of the "old" funds into the "new" funds with the knowledge of any penatlies. Sometimes it is worth it to take the penalty. Therefore you still only have one plan and one administration fee but have investments at more than one place.

Currently we are doing this for a 401(k) plan and almost all the employees moved their money into the new funds. However we still track the few employees that did not want to move their investments.

[KJohnson]

M Weddell--I thought the definition of Plan incorporates the permissive aggregation rules of 410(B). 1.401(k)-1(g)(11). Thus could you permissively aggregate the two plans under 410(B) [although this would ordinarily not be neccessary since the both cover everybody) and then you could aggregate deferrals of both HCEs and NHCEs in your ADP test.

[Dawn Hafner]

I agree with Alan. If the investments are the problem, why add another plan? You can often leave the investments where they are and gradually roll them out as the fees expire. Meanwhile new investments are started elsewhere, all done within the same "plan".

[Guest Jimmy B]

The client cannot end contributions to this plan or make deposits into any other funds under this plan per the annuity contract. The client still has 5 years to go on his contract. Right now, any transfers would be assessed a 6% penalty. The contract is considered suspended if no contributions are made for 3 years, funds are transferred, deposits are made to outside funds, etc. In light of this, does the following sound like a reasonable solution: allow EE's to defer (like always) into the existing 401(k) plan. Start a new profit sharing plan to make discretionary contributions into. After 2 more year, the old plan can be frozen and 401(k) features can be added to the new plan. All plan assets can be combined after 5 years without penalty.