Terminating a DB Plan to open a CB Plan

I'm taking over a client and they are looking to terminate their existing, traditional Defined Benefit Plan to instead utilize a Cash Balance Plan moving forward.  I know the limits are lifetime limits, etc.

The question is, are they allowed to terminate one and open the new CB Plan within the same year?  Someone is telling them that they can't, so I wanted to double-check.

Thanks!

yes, the rule of thumb is that a new plan ought to be "materially different" from the one which is terminating.   Obv, IRS has never defined "materially different" so it is up to a practitioner to interpret.  I have seen positions taken that a different interest crediting rate (old plan 5%, new plan 3%) is a "materially different".  Going from DB design to CB design feels OK.

Yes, they can. Do they need to? Different question, your actuary can help you there. Sometimes terminating one plan in one year and starting the next plan in the next year will accomplish your goals and save you an unnecessary extra year of administrative costs.

14 hours ago, metsfan026 said:

I know the limits are lifetime limits

Probably OK but if the terminating plan has excess assets that are being allocated remember to include those in the benefits when coordinating 415 limits with new plan.

Also, if you were and/or will be aggregating with a DCP to satisfy coverage and nondiscrimination, they need to have the same plan years so it might be cleaner to terminate 12/31 and start new plan 1/1.

I assume this is likely an owner-centric plan and the owner(s) want to roll lump sums and self invest, settle the liabilities and risk thereon, otherwise simply freezing traditional formula and converting to CB would save a lot of time and expense.

May I ask why not doing a conversion? Cusefan has very good points and then some to the reasoning of terminating.

This way, you will continue with the very high deduction limits, not to worry about prior distribution adjustments, establishing new salary history etc etc.

Simply do the conversion at end of the year with the (A+B) method - only permitted method.

Of course, I have no idea what the facts and circumstances are here so everything I am saying above is from my point of view.