Coverage/Discrimination issues where employer maintained two plans during the year?

Client had a solo 401k and terminated it on June 30th.  On July 1 they hired there first employee and created a brand new plan giving immediate entry.  

Client received a 13k profit sharing allocation on the terminated plan.

Do we have a coverage or discrimination issue with the new plan?  

If the new plan is a 401(k) Plan don't you have a problem with the successor plan 12 month rule?

Do the Plan Years overlap? What is the effective date of the new plan?

36 minutes ago, Lou S. said:

If the new plan is a 401(k) Plan don't you have a problem with the successor plan 12 month rule?

Do the Plan Years overlap? What is the effective date of the new plan?

I wasn't aware of the SP rule.  Thank you.  They are clearly in violation.  plan 1 terminated 06/30/21.  New Plan effective 07/01.

Given they have violated the SP rule, rolled their money into the new plan, how do they fix this?

If the money was rolled over into the new plan, you have a violation of the successor plan rule because there was no distributable event. However, if the trustee of the old plan was directed by the company to transfer the money directly into the new plan, there was no violation because there was no distribution. You should check the paperwork in connection with the rollover. As far as coverage/discrimination, which was your original question, the new hire is statutorily excludable, so I don't have a problem with the  contribution to the old plan as long as the owner was not statutorily excludable as well.

Successor plan issues aside, there may be a nondiscrimination issue if the timing of the plan termination was such that the NHCE would not benefit. See the rules under 1.401(a)(4)-5.

FWIW - As prior posters have stated on this board, there is no such thing as a solo 401k plan.  It is simply marketing gimmick created to sell plans.  A "solo 401k" is simply a 401k plan with one eligible participant.  "Solo 401k" plan documents still have eligibility provisions, allocation formulas, vesting schedules, etc.  Why was the plan terminated?  The new employee would have simply become eligible to participate under the terms of the current plan.  The plan goes from filing a 5500EZ to a 5500SF.  I don't understand the thought process with terminating an existing plan and starting a new plan.