Multiple Employer Plan

[Guest benefitsgirl]

I have a multiple employer plan. Entity is a participating employer. Entity ceased existence in February 2011. New Entity was formed. New Entity is not a participating employer and not controlled with Entity sponsoring the plan. Employees in New Entity contributed 401(k) deferrals to plan. Employees who deferred were previously employees in old entitity that was a participating employer. Are the new entities 401(k) deferrals allowed in plan, since not controlled and not a participating employer?

[Guest GeerTom]

Doesn't sound like it. The logic of the documents probably goes like this--

A business adopts the plan, thus becoming an "employer" as defined in the plan document..

Its employees are thus "employees" as defined in the document. and become eligible to be "participants" after meeting age, service and classification requirement.

Employer makes contributions for participants, out of salary reductions.

So the logic chain is broken at the very first step. No deferrals are permitted.

If some deferrals have already been made, they can be gotten back. You don't need to do the normal analysis on returnability here. Since the company is not an employer under the plan, the limitations on reversions to employers don't apply, making the details of the normal analysis unnecessary. Essentially, without a relationship between the company and the plan, this is a simple debt issue, and the money should go back to the company simply because they are not contributions and not subject to the limitations on repayment. As to gains/losses while in the plan, the plan should probably use the same rules it would if this were a permitted reversion to an employer because these are intended to keep the plan and other participants whole.

Tom Geer