Client Leaving PEO 401k Plan

[coleboy]

Client wants to leave the the PEO's 401k plan and start their own. The PEO plan is a safe harbor. Does the client's new plan have to be a safe harbor as well? Do they have to continue with the same plan provisions?

 

[Kevin C]

There is no guidance on mergers or spin-offs of safe harbor 401(k)s.  The best you can do is to apply a reasonable good faith interpretation of the safe harbor rules.

If the safe harbor started in the PEO plan isn't in effect for a full 12 months, they lose the SH for the year under 1.401(k)-3(e)(4).  1.401(k)-1(d)(4) will force the balances in the PEO plan for actives to go to the new plan and some of the PEO plan provisions will be protected under 411(d)(6) for the PEO balances.