Terminating a PEO 401k for one adopting Er

Potential client is a non-profit and we want to set up a 403b plan instead.  Can they "terminate" their sliver of the PEO 401(k) plan to create a distributable event?

No, I don't think so. But you should be able to spin off their portion of the 401(k) and then terminate that new plan. I do not know if the successor plan rule would prevent you from immediately adopting a new 403(b) after terminating a 401(k).

1 minute ago, C. B. Zeller said:

. I do not know if the successor plan rule would prevent you from immediately adopting a new 403(b) after terminating a 401(k)

That part I know is OK.

I have read the solution you mentioned about the spin-off plan, the one thing that baffles me is how you get around the permanency issue...

17 hours ago, austin3515 said:

That part I know is OK.

I have read the solution you mentioned about the spin-off plan, the one thing that baffles me is how you get around the permanency issue...

You don't worry about it!  Permanency is mostly a bogey man.  It rarely comes up in the real world because the permanency requirement can be easily rebutted with any good business reason for termination. Setting up a 403(b) instead is, in my view, one of the thousands of perfectly good excuses we can come up with!

Agree with Larry Starr.

C. B. Zeller:  The Successor rule does not apply to a "terminate 401(k) and start 403(b)" situation.