40k to MEP

[Earl]

Representative of a MEP just called me and said they want me to terminate the 401k plan I administer, distribute the assets and file a final 5500.

Does joining a MEP avoid the 401k distribution/no plan for a year issue?

Doesn't sound right to me.

Thanks

[mphs77]

If the Employer in question has already adopted the MEP then it would not be a successor plan (it is already in place) so the 1 year exclusion does not matter.

[Mike Preston]

You sure?

[mphs77]

Depends on when they adopted the MEP.....

[Mike Preston]

Doesn't it depend on the technical definition of "successor" plan. Have you looked that up? I seem to recall that the definition is surprising. I just don't remember (and don't have time to look it up) whether the technical definition of successor plan applies to this particular rule.

[Kevin C]

The applicable term for determining if a plan termination is a distributable event for a 401(k) plan is "alternative defined contribution plan". "Successor plan" deals with other rules.

1.401(k)-1(d)(4)Rules applicable to distributions upon plan termination

(i)No alternative defined contribution plan.—A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term "employer" contained in §1.401(k)-6 is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan. However, if at all times during the 24-month period beginning 12 months before the date of plan termination, fewer than 2% of the employees who were eligible under the defined contribution plan that includes the cash or deferred arrangement as of the date of plan termination are eligible under the other defined contribution plan, the other plan is not an alternative defined contribution plan. In addition, a defined contribution plan is not treated as an alternative defined contribution plan if it is an employee stock ownership plan as defined in section 4975(e)(7) or 409(a), a simplified employee pension as defined in section 408(k), a SIMPLE IRA plan as defined in section 408(p), a plan or contract that satisfies the requirements of section 403(b), or a plan that is described in section 457(b) or (f).

(ii)Lump sum requirement for certain distributions.—A distribution may be made under paragraph (d)(1)(iii) of this section only if it is a lump sum distribution. The term lump sum distribution has the meaning provided in section 402(e)(4)(D) (without regard to section 402(e)(4)(D)(i)(I), (II), (III) and (IV)). In addition, a lump sum distribution includes a distribution of an annuity contract from a trust that is part of a plan described in section 401(a) and which is exempt from tax under section 501(a) or an annuity plan described in 403(a).

[Mike Preston]

Seems pretty clear that the MEP has some 'splainin to do.

[Earl]

Thanks. Not sure what my obligation is when the client says to process distributions. Since I just got fired I guess I will just let them go down with their ship. Probably nothing would ever come of it anyway.