Breaking away from a PEO MEP

ABC Co is part of a PEO MEP and they are operating their plan as a 401(k) QACA with a 100% vesting on the first 1% of deferral and 50% on the next 5% of deferral.  Prior to joining the MEP, they never had a plan.   

They have not had a great PEO MEP experience, and have found someone else to take over most HR duties, including payroll.  They want to break away from the PEO MEP as soon as possible.   

They want to keep a 401(k) and simply move the assets over, but make slight changes (like adding loans, in-service, no auto enroll).  They are unsure if they want to keep the same match formula or go to something different, but I think they’re leaning towards something different. 

We’ve reviewed the SPD, but still waiting on other documents.  From the Q&A I've read in ERISAPedia, it sounds like it's very important to review the actual plan document for possible "gotcha" moments. 

They apparently have had issues with the Auto Deferrals and the Advisor has told us that they have removed the Auto Enroll feature at some point in 2020.  We are not sure if they sent notice about that or changed the match feature, but we're assuming they did.  WE don't know if this occurred in the 

They’d like to get this all done in 2020, but we’re running out of time.  We know it would be cleaner to stay in the MEP through the end of the year, and start the new plan effective 1/1/21, but they don’t seem to want to go that route. 

I’ve found nothing in 2020-52 that addresses how the QACA is effected, if the Automatic Deferral feature is removed.

 Questions:

1.   Since they removed the Auto Deferral feature, what challenges are now faced with the discrimination testing (ADP, ACP, Top Heavy)?  Does it have to be done for 2020?  IF so, do we use Current Year Testing?

2.   If it’s determined that we have to do Current Year Testing and fail a test, how do we correct it?  For example, if they fail ADP, do the refunds or QNEC have to be done/made in the PEO Plan?  Or can it be done in the new Plan?

3.  How important is it to review the fine print in the Plan Document to see what challenges are faced with removing itself from the MEP PEO?

Some thoughts:

1. Are they still sending money to the bad MEP? Can they just stop doing that and start with their own plan now?

2. The way getting the old money out of the bad MEP is through a trust to trust transfer. Moving the money sooner is better, but a delay in that is not going to complicate the compliance appreciably.

3. You need the Plan document and any contract to figure out what the employer and MEP sponsor have agreed to do. The SPD does not give you enough.

 I would assume the cessation of the auto-deferrals mid-year blows the QACA for that year, absent guidance to the contrary. I was.n't able to find any through a quick google search.