Controlled group issue

[Nood1e]

This is a husband and wife plan. The husband is an adopting employer. They’re getting a divorce that will be effective November 2018. The client would like to begin setting up a separate plan for her husband. Can he adopt  a plan’s in the same year in which he is already an adopting employer of an existing plan? Or would it best to make the new one effect 1/1/2019?

[K2retire]

What type of plan is it?

[Nood1e]

Thanks for the response - just a owner / spouse 401(k).

 

I'm thinking that once the relationship is severed, it's severed, and he can do what he wants. I don't see successor plan issues. Probably safer just to wait until 1/1/2019 unless he really has his heart set on getting a deduction for the last month or two of the year.

[PensionPro]

The OP is titled "controlled group issue."  If the spouses have a minor child the two entities/employers will continue to be a controlled group.

[Larry Starr]

5 hours ago, Nood1e said:

This is a husband and wife plan. The husband is an adopting employer. They’re getting a divorce that will be effective November 2018. The client would like to begin setting up a separate plan for her husband. Can he adopt  a plan’s in the same year in which he is already an adopting employer of an existing plan? Or would it best to make the new one effect 1/1/2019?

The real question is "why are you worried about it".  That isn't clear to me.  Are you aware that you don't have to do anything in 2018?  You could just finish out the 2018 year and handle it just like the 2017 year.  Then, you can spin off to a new plan in 2019 if that's what you want.

The following is from Derrin Watson's book Who's The Employer:

The Code sets up a grace period, called the “coverage transition rule” of more than one year during which a plan automatically passes Code §410(b) and Code §401(a)(26), the minimum participation and coverage requirements.

The grace period begins when the group’s membership changes. It ends at the end of the first plan year beginning after the change, or, if sooner, when there is a significant change in coverage or benefits. [Code §§410(b)(6)(C), 401(a)(26)(F); Rev. Rul. 2004-11]

[Nood1e]

My thanks to all who have chimed in.