Plan Term - New plan - successor issue?

[jmartin]

Company A has a 401k plan. Let's say they want to terminate the plan 12/1/13. They plan on paying everyone out by 12/15/13. The following questions are posed:

- Can the 401k be aggregated with their Cash Balance plan for the 2013 plan year due to the 401k having a short plan year?

- The company will be starting a new 401k plan. When can the successor plan be started? Is it 12 months from plan term (12/1/14) or final distribution (12/15/14)?

[rcline46]

Bad, Bad, Bad. The new 401(k) plan must not start until 12 months AFTER the last distribution. And if started in 14, it will have to have a short plan year or it will fail the 12 month test. And it cannot be aggregated with the Cash Balance plan because it does not exist on 12/31, so the cash balance will probably fail.

There cannot be any good reason for terminating and restarting the 401(k) plan immediately.

[John Feldt ERPA CPC QPA]

If the "plan year" (I believe that to be both the first day and the last day of the plan year) for the 401(k) plan does not coincide with the plan year for the cash balance plan, the plans will not be able to be tested together, and this may be a problem. The termination and distribution from the 401(k) plan as you described changes the last day of the plan year for testing purposes.

I think a "successor" plan is what you want to avoid. If you wait for 12 months after the last distribution occurs to set up another plan, then you have a legitimate distributable event when the first plan terminated. If the second plan is set up too early, then you have a successor plan and the distributions from the first plan are in jeopardy.

[david rigby]

There cannot be any good reason for terminating and restarting the 401(k) plan immediately.

Consulting opportunity: investigate the reason for the proposed term/restart.