Effects of a change in partnership on a 401(k) plan

[Guest Pat Metallic]

There is a partnership which is losing a partner and adding a new partner. They are dissolving the old partnership and starting a new partnership. As I understand it, they are filing for a new EIN.

They have a 401(k) plan. What are the effects of a change in partnership on the plan. Do they need to terminate the existing plan once the old partnership is dissolved? If so, does the same desk rule apply? Or can they just amend the plan to change its name?

[BeckyMiller]

This whole partnership termination thing is frustrating. There are mechanical rules in IRC Section 708 regarding the mandatory termination of a partnership if within a 12-month period there is a sale or exchange of more than 50 percent of the capital interests of the partnership. I once worked on a partnership that terminated 3 times within the same calendar year.

Most partnership plans provide for the continuation of the plan by a successor employer. Typically in these circumstances the new partnership takes on that role. The fundamental issue becomes the measurement of compensation, timing of any deductions, contribution, any last day rules, etc.