Successor Plan Issues

[Randy Watson]

Small company (one man plan) establishes and maintains a defined benefit plan for many years. The plan is fully funded and no more deductible contributions can be made. The plan is terminated and the benefit is rolled over to an IRA. A full tax year goes by and the owner wants to establish a new defined benefit plan. Is there anything that prohibits this or will limit the owner's ability to establish and fund that new plan?

[Effen]

Nothing prohibiting it, but you need to offset the benefit in the new plan by what he received from the old plan for 415 purposes. Since he is the same employer, his prior distribution counts against the 415 limit in the new plan. So if "no more deductible contributions could be made" under the old plan, the only thing he could fund would be the COLA increase in the 415 limit, which most likely is not worth the pain at this point.

[david rigby]

Correct. However, if the prior plan was limited by the 415 % limit and the new plan can recognize greater compensation (up to the $ limitation), there might be value in such a plan.