Terminating from a PEP

A sponsor wants to leave a PEP and continue their plan either by spinning off to a new standalone PEP or a new standalone non PEP as a continuation of the 401k plan Concern is we may not be able to do this by 1/1/26. This is a non safe harbor non PEO plan. Are the main concerns whether the PEP and RK will allow this to occur mid-year? If the new 401k plan is drafted as a continuation plan I do not see that a short plan year is created. Please confirm, etc. Thanks!

You should be able to do this via a Merger and Transfer Agreement whereby you merge and transfer the assets from the PEP to the stand alone plan. The PEP will report on its 5500 the transfer out, listing the name of the stand alone plan, the EIN and the Plan Number.  You will need to review for anti-cutback issues, etc.  Your plan document provider should have a model M&T available.  The current PEP may also have a model you may be able to use.

The stand alone plan will list the transfer in from the PEP on its 5500.

The same would apply if you are going from PEP to PEP.  A M&T will need to be prepared.

I am not sure why this would be a mid year plan issue and why the PEP/RK would not permit the transfer out from a plan document or recordkeeping perspective, unless there was some agreement that it could only be done at PYE.