terminating and then starting a new plan

[Santo Gold]

We are looking at an employer who terminated a plan earlier this year and recently paid everyone out.  He wanted to start a new one but he's got to wait at least 12 months.

But he also owns 2 subsidiary companies.  If either or both of the subsidiaries were not participating in the original 401k plan, could they start a plan up immediately, even though the owner of the main company and the 2 subsidiaries had sponsored the original plan?

Thanks for any replies.

[Larry Starr]

19 hours ago, Santo Gold said:

We are looking at an employer who terminated a plan earlier this year and recently paid everyone out.  He wanted to start a new one but he's got to wait at least 12 months.

But he also owns 2 subsidiary companies.  If either or both of the subsidiaries were not participating in the original 401k plan, could they start a plan up immediately, even though the owner of the main company and the 2 subsidiaries had sponsored the original plan?

Thanks for any replies.

No. Controlled group rules apply. 

[tghooper]

Larry is correct.  But I'm wondering if the plan passed coverage before and after termination, it seems that that would be ok?

[Santo Gold]

Pretty cut and dry.  Thanks very much.

[KML]

It seems that the issue here is the "alternative defined contribution plan" rule under 1.401(k)-1(d)(4).  You say that the 2 subs were not participating in the original 401(k) plan sponsored by another entity in the controlled group.  If the subs were not participating employers in the original 401(k) plan, their employees were not eligible under the original 401(k) plan which terminated.  Therefore, it would seem that starting a new 401(k) plan under which ONLY the subs would be eligible would be permitted because the new plan would not be an alternative defined contribution plan because the employees eligible under the new plan were not eligible under the original 401(k) plan.  Am I missing something?

[Luke Bailey]

Agree with KML. After the 2 subs (and no one else) start participating in the new plan, 0% (which is less than 2%) of the employees who previously participated will participate. Well, you could have some employees who move from parent to a sub, so exclude those in the document for one year to be safe.