New Defined Benefit Plan

[ac]

An individual just sold the assets of his corporation to an unrelated corporation on April 30th.

His five employees terminated employment with his corporation on April 30th and are now employed by the purchasing corporation.

The purchasing corporation has agreed to pay the individual's corporation consulting fees for continuing to provide services for the purchasing corporation.

The individual's corporation wants to establish a new defined benefit plan effective July 1.

Questions:

1. Will the new defined benefit plan pass 410(b) coverage testing for the plan year beginning July 1? In performing the 410(b) coverage test, will the 5 former employees need to be considered in any way for the plan year beginning July 1?

2. Will the 5 former employees have to be considered in any way for testing under 401(a)(4) for the plan year beginning July 1?

3. Will the timing of adoption of the defined benefit plan be considered discriminatory since it is adopted after the termination of the 5 employees?

Any insight or comments will be greatly appreciated!

[John Feldt ERPA CPC QPA]

When I see the response to this question at various conferences, the IRS normally has no written comment other than "this will be addressed from the podium". When the give their verbal response, they mention that each case is unique and this type of situation could certainly give them reason to consider such a plan as not qualified from its inception, but until they have considered all the facts and circumstances, they cannot provide an answer as to the plan's qualified status.

[ac]

Thanks John. I told them to either cover everyone in 2014 or get an opinion from an ERISA attorney.