Successor Plan?

[Kac1214]

Do control group rules affect successor plan rules? I have a person who owned two businesses, only one with employees. This Company with employees  has been sold and all employees hired by the new company. The business owner/sales person is going to a 1099 consultant to the business. Can they establish a 401k plan under the other business they owned (or a new one they create)? Or should they just establish a SEP which I know is not a successor plan. 

Thanks

[Luke Bailey]

You mean they never had a plan and now want to establish one for the consultancy?

[Kac1214]

They had a plan for the company with employees and terminated it as a result of the sale. Now, would like to sponsor a Solo K (or DB) for the consultancy. Thanks

[Luke Bailey]

What is the "successor plan" issue, that they want two 415 limits in a single year?

[Kac1214]

I don't want a new plan to disallow the distributions from the prior plan. All those assets have been distributed due to plan termination.

 

[Luke Bailey]

OK. I assume that the owner is 2% or > of the population of old plan. Under 1.401(k)-1(d)(4)(I), CG is determined at date of sale, and the "other business" may have been in a CG. Arguably, a new business that did not exist on the date of sale would not be in the CG, but this gets really complicated and substance over form issues may intrude.

[Kac1214]

Thank you for comments, I do appreciate them and they dovetail with my research as well. I think the SEP for 2018 is the proper solution.

[Luke Bailey]

UR welcome, Kac1214.