Severance--12 months of no 401k deferrals

[Oh so SIMPLE]

The situation is a medical partnership of 5 MDs (Old 5). They terminate that partnership on a Friday. Next Monday, 4 start new partnership (New 4); 5th one retired. New 4 hires virtually all the same staff, but moves the equipment over that weekend to new office space. New 4 has a slightly different name (enough to get by the state's business entity registration folks).

Old 5 had a 401k plan. New 4 sets up a new 401k plan. Numerous factors are driving for a termination of Old 5's 401k plan, rather than continuing it as a wasting trust or merging it into New 4's 401k plan.

If Old 5's 401k plan is terminated and payouts processed, will New 4's 401k plan have to prevent those that went from Old 5 to working for New 4 be prevented from making 401k deferrals for 12 months following the payout from Old 5's 401k plan?

[Oh so SIMPLE]

My research indicates this would be a problem as Old 5 and New 4 would be an affiliated service group or control group at the date of termination of Old 5's 401k plan.

The reason motivating this is trying to get some nonqualifying assets one of the 5 MD's directed his benefits be invested in, out of a QRP where it is causing increased bonding (to avoid audit despite otherwise being a small employee plan) and annual appraisal costs. There are sufficient other assets for this MD's 401k benefits, and the nonqualifying asset could be allocated entirely to the MD's profit sharing benefits.

So, here is the attempted work around. Merge just k assets/benefits obligations of all employees from Old 5's plan into New 4's plan. That would leave just PS assets/benefits obligations in the Old 5's plan, could Old 5's plan be terminated and distributions of the assets remaining in Old 5's plan be distributed, regardless of New 4's plan existing and being operated?

[Lou S.]

Any way to take an in-service distribution of the nonqualifying assets? That might be be your best bet.