Successor Plans

Have a client who had to wind down his business, terminated the firms  PS/401(k) plan (5 people if that matters) in 2020, last distribution was made 2/19/2021 and a final form has been filed. This was not related to Covid 

Business has started to come around, owner is in his 70's and one employee still works for him that was a participant in the terminated plan, age late 60's.

Now they would like to adopt a Profit Sharing Plan for 2021, assume no deferrals at least not for now, would this violate the Successor Plan rule? Have never been presented with this situation.

Any help is appreciated

2 hours ago, Michele Pintabona said:

assume no deferrals at least not for now, would this violate the Successor Plan rule?

Yes. Treas. Reg. §1.401(k)-1(d)(4).  

No alternative defined contribution plan. A distribution may not be made under paragraph (d)(1)(iii) of this section if the employer establishes or maintains an alternative defined contribution plan. For purposes of the preceding sentence, the definition of the term “employer” contained in § 1.401(k)-6 is applied as of the date of plan termination, and a plan is an alternative defined contribution plan only if it is a defined contribution plan that exists at any time during the period beginning on the date of plan termination and ending 12 months after distribution of all assets from the terminated plan.

WCC, Thank you very much! 

 They just have to wait till after 2/20/2022 which is when the 12 month period ends 

Would it make a difference in this case that the only two remaining participants were past age 65?   The active participants did not need a plan termination to have a distributable event.

good point. Did the terminated plan allow for in-service distributions? Or was their distribution only allowed based on the plan termination?  

If it did allow for in-service, but the distribution was processed on account of plan termination, does that mean the distributions are okay with a successor plan in place? I don't know the answer to that, but it is an interesting question. 

Query: could a new plan be adopted on or after 2/20/22 and be made retroactive to 2021 at that time for purposes of making a 2021 profit sharing contribution? Clearly, the plan did not exist within the 12 month period. I don't know the answer, but I think a good argument can be made that you can.

An interesting argument, but I wouldn't want to defend that position!