Successor plan technicality

[Bri]

So, here's 1.401(k)-1(d)(4) from the Cornell Law website folks

The fact pattern a co-worker gave me was interesting

DB/DC combo, plan needs to make DC allocations for 2022.

Plan sponsor's assets were sold/employees terminated in 2022.  DC plan has been already terminated, though, and everyone's paid out, maybe except for one straggler.

There's concern their big former DC separate recordkeeper would balk about opening the plan back up after termination/payouts.

 

Anyway, the "interesting part" concerns whether or not the sponsor can just start up a separate DC plan, retroactive to 2022, to receive these allocations for the testing.  This regulation seems to preclude distribution upon the termination of a plan when the sponsor's going to set up another plan within 12 months.  The thing is, in this case, all the employees' distributions are contingent upon their termination of employment with the Seller.  And the owner has a distributable event upon age 59½.  So none of these distributions seem to have the plan termination as the distributable event - does that mean a successor DC plan is going to be okay after all?

--bri

[Lou S.]

1st - talk to big DC separate record keeper and see if they will re open.

2nd - if they say no, can you open a checking account in the name of the plan? Make the contributions there than pay out the folks who need a distribution assuming you can do the withholding and 1099-Rs or run it through some one who can.

 

 

[Bri]

Thanks, Lou - That was my thought as well, to have other assets outside that recordkeeper, so their version of the prepared 5500 would be wrong, but that's fine if the sponsor only actually files our replacement version instead.

As it's not my plan, I was actually more curious about the legal argument, than how my colleague's gotta deal with it 🤪