401(k) Plan Termination

[Guest ABABAK]

We have a client who called and wants to close down their 401(k) Plan. It has been in existence for more than 10 years. The problem has been surrender charges (greedy brokers established plan initially). Every new dollar has to age 10 years before it is not subject to a surrender charge. It is a church group.

They called today wanting to terminate the plan. In our discussion, it came to light they would be implementing a new plan. When asked what type of new plan, they said a 403(b).

My question, does the 12 month rule apply? Am I correct in that if you terminate a 401(k) Plan you cannot implement a new 401(k) plan for at least 12 months? Can they get around it by implementing a 403(b)?

[PensionPro]

A 403(b) plan is not considered an alternative DC plan for this purpose, so yes they can implement a 403(b) plan within 12 months of terminating a 401(k) plan.

[ETA Consulting LLC]

True. With respect to the 10 year rolling surrender, I'd look for alternatives (since the plan must be fully distributed within 10 months of plan termination). Will the company issue individual paid up contracts (non-transferrable annuities) for the participants' account balances?

Good Luck!