Terminating 401k plan

[Guest MikeD]

I received a call this week from an employer. They have elected to terminate their 401k plan and the resolution to terminate has already been adopted and the distribution forms have been sent to the employees. They did this with the intent to start a "new 401k" plan. Obviously, that's not going to work, since that would be a successor plan. After further discussions with their recordkeeper, the intent wasn't to do a new 401k, but to do a new plan that did not allow elective deferrals, and, after one year, to add elective deferrals back into the plan. I'm pretty sure that still doesn't work, since the successor plan rules apply to almost all DC plans (exceptions for ESOPs, etc.).

So, the train has already left the station and they can't unwind the termination of the old plan for some political reasons within the company. However, the owner wants to go somewhere with her money and would like to still make contributions (I know, I know...this would have been a lot easier to address on the front end...unfortunately, I'm being brought in now).

Does anyone have any ideas what they can do now? I know they could establish a SIMPLE IRA, but I'm pretty sure they couldn't roll the 401k money into that SIMPLE and they would have to participate 2 years in the SIMPLE before they could roll the SIMPLE money into a new qualified plan. They are looking for something they can do for this year only. I'm pretty much out of ideas, so I thought I would throw it out to the experts here.

Thanks!

[Bird]

I don't think it's too late to un-do the termination if money has not yet left the plan, but other than that, you have outlined the (one) possibility for making employee contributions - a SIMPLE IRA.

[Jim Chad]

If they are talking about no deferrals for one year, could they do a SEP?