A ridiculous situation

Maybe I'm just being stupid here - seems like an excessive amount of silly work when there's maybe a sensible workaround. Real situation, but first time I've encountered this particular situation.

A MEP. Big "lead employer" (A) and a 3-person (no HCE's) participating employer (B) as a MEP. Participating employer (B) withdrawing, so will no longer be a MEP. Participating employer (B) does not want to maintain the plan, but the employees of (B)  are not terminating employment with (B). 

As I understand it, there needs to be a spinoff plan with (B) as the sponsor. It is (B's) intention to have the assets transferred to the new spinoff plan, and immediately terminate. (B) does not want to allow any deferrals or contributions to the spinoff plan.

Since the existing plan permits Roth deferrals, one of the participants has Roth deferral account.

Trying to figure out if the new plan can accept this Roth deferral account if the spinoff plan doesn't allow deferrals at all, so that there is technically no "designated Roth account" - and/or is there another way around this that isn't penetrating my skull? Am I worrying about nothing? 

You pretty much have all the steps down.  The amounts transferred to the spin-off plan are not rollovers, so the spinoff plan should include all of the money types that are transferring over from the MEP.  You can look at freezing future types of contributions to try to keep things clean going forward.

Stepping back, it seems the participating employer just wants to do their own thing.  They could consider withdrawing as a participating employer, setting up a new plan for their company for future benefits, and leave their accounts in the current plan until they have a distributable event that would allow a rollover.

These are simple thoughts and warrant a deep dive into what the existing plan allows, what a new plan would look like, and how much annoyance both employers are willing to tolerate.

Thanks Paul. Yeah, we'd love it if the spinoff plan was to be maintained going forward, (we suggested that) but the withdrawing employer doesn't want a plan at all. So the spinoff plan will be established and immediately terminated. A Royal PIA, which is why I was hoping there was something easier. Ah well...