Establish Second DB Plan after First DB Plan is terminated

[rew]

Facts:

Small Law Firm (Owner Attorney and spouse and 2 NHCEs) established both a 401(k) plan and DB plan eff. 1/ 1/2009.

Decision made to terminate the DB plan 12/31/2013 (non-PBGC plan) and continue the 401(k) plan.

DB plan distributions completed in 2014 along with final 5500.

Attorney changed his mind and would like to continue a DB plan (i.e. establish a new DB) for 2015 (at a smaller contribution level, $50K). There are no changes to the employee group.

Footnote: I would assign PN: 003 to the new DB plan.

Question:

1. Are there any considerations (rules/regs.) which may prevent the owner from establishing a new DB plan given the above facts?

2. I believe the terminated DB plan's accrued benefit must reduce the 415 limit for each participant. Agree?

I appreciate any comments or other concerns I may have overlooked for this issue. Thank you.

[Lou S.]

1 - None that I can see.

2 - Correct the prior distributions from the "old" DB plan goes against the 415 limit of each participant in the "new" plan.

[jpod]

There was, arguably, a "permanency" issue raised by the termination after only 5 plan years. Wouldn't the establishment of a new DB plan after only a one-year pause make this more of a the problem (if there is a problem)?

[Mike Preston]

I'm not worried about the permanency issue after 5 years. It is hard for me to imagine that a competent representative wouldn't be able to successfully argue that enough circumstances have changed in the five year period so as to render that issue moot. Especially if the 12/31/2013 termination was submitted to the IRS. I'm more concerned with an end run to the in-service distribution restrictions.

[tymesup]

Assuming you are satisfied there is no permanency issue, the participation under the old plan can be added to the participation under the new plan to determine the 415 limit. Since the contribution is only 50K, this is probably not an issue.

[rew]

Thanks again for the responses. This is a situation where the attorney's revenue stream can change dramatically from year to year. His decision to terminate the first DB plan (which was designed to provide a high level of benefits) was prompted by the higher required contributions and his continued ability to fund the plan. He was not interested in a reduced future contribution level at the time of his decision. He is interested now.

As far as skirting the in-service distribution restriction, all distributions were properly processed and spousal consent obtained. Each participant elected to rollover their distributions into the existing 401k plan or another IRA. Hopefully, that would satisfy any IRS concerns.

And I agree that, with a lower future level of required DB contributions, there will be no 415 issues as a practical matter.

[My 2 cents]

I think that the permanency requirement relates to not terminating the plan within 5 years of when it was established, without a good reason for terminating (not built into the decision to establish the plan in the first place). It looks as though the earlier plan made it through 5 years before it was terminated.

Absent some discriminatory intent (possibly related to having terminated most of the non-HCE employees in the interim), I would not think that one is required to have a semblance of permanency with respect to not maintaining a plan.

[jpod]

I thought the "safe harbor" was 10 years and anything less is facts and circumstances and you have to justify. Maybe there is justification here, but a mere one-year pause suggests otherwise IMHO. If 5 years is the new safe harbor, I am happy to learn that for multiple reasons.