Successor Plan Rule Issue?

A Plan Sponsor elects to discontinue their single-employer plan and join a PEO/MEP. 3 months later, the Plan Sponsor decides they want to leave the PEO/MEP and go back to a single-employer plan. Is this an issue since less than 12 months have passed since the Plan Sponsor originally discontinued their single-employer plan in favor of joining the PEO/MEP?

Are these just plans merging and spinning off, rather than terminating?

Agree with Bri, but also want to say there was likely an issue with the successor plan timing unless the original single ER plan was merged into the PEO. Where did that money go?

And assuming all the Plans we are talking about are 401(k) Plans. I assume that is the case since we are in the 401(k) Plan sub-forum but OP doesn't make that 100% clear.

Thank you for the feedback. Yes, both plans in question are 401k plans, and the intention was to merge the assets from the original single-employer plan into the PEO/MEP, but it never happened since the Plan Sponsor decided they had no desire to remain in the PEO/MEP. However, the Plan Sponsor did cease to remit contributions to their original single-employer plan as they were remitting to the PEO/MEP instead for the three month period they were participating in the PEO/MEP.

Sounds like the intention was there but did Plan 1 actually formally terminate?  Or did they just kinda switch everyone's new contributions to Plan 2 (the PEP) while Plan 1 stayed in a sort of limbo state?

Hi Bri - it is the latter.

I'll obviously recommend checking for sure with an ERISA lawyer, but I'm at least hopeful for you, knowing that the first plan hasn't actually gone away.

Assuming you just froze the first plan pending a merger that the client has changed it's mind on then I think you could unfreeze the first plan and spin off the PEO assets to original 401(k) Plan. Assuming you don't have any safe harbor 401(k) issues and you don't have any prohibited cut backs.

But agree with Bri's suggesting to at least get an ERISA attorney opinion.

Agree with all prior comments. Big picture: the successor plan rules are in place so a plan sponsor could not circumvent the in-service withdrawal rules by terminating its 401(k) plan, distributing assets and then starting another 401(k) plan in the near term. If none of the events resulted in an in-service pre-59.5 distribution of assets then I don't think you have any successor plan issues but it certainly doesn't hurt to get legal opinion.

Thank you all!