What is the 401(k) successor plan rule?
If a 401(k) plan is terminated, a new 401(k) plan may not be established
until 12 months after all the assets have been distributed from the
terminated plan. A distribution of elective deferrals from a 401(k) plan
may not be made if the employer establishes or maintains an alternative
defined contribution plan (a/k/a "successor" plan). In the case of
mergers or acquisitions, the definition of the term “employer” is
applied as of the date of plan termination. A plan is an alternative
defined contribution plan only if it is a defined contribution plan that
exists at any time during the period between the date of plan
termination and 12 months after distribution of all assets from the
Plans that are exceptions to the successor plan rules:
Defined benefit plans (including cash balance plans), ESOPs, SEPs,
SIMPLE IRAs, 403(b) and 457(b) plans do not constitute a successor
defined contribution plan.
Note: The last three plan types were added by the final 401(k) regulations
issued in 2014.
With the exception of the plans listed above, the employer may not
maintain any other defined contribution plan during the period between
12 months before the termination date of a 401(k) plan through 12 months
after the distribution of all of the assets of the terminated plan.
The 2% Exception to the Successor Plan Rule
However, if at all times during the above period, fewer than 2% of the
employees who were eligible under the 401(k) plan as of the date of plan
termination are eligible under the other defined contribution plan, that
plan is not an alternative defined contribution plan, and the successor
plan rules would not be violated.
Topical Articles of Interest:
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Successor Plan Rule
provided for review and consideration only. Please consult legal and tax
practical advice pertaining to your business and personal situations.
This page was last reviewed and/or updated
Friday, July 03, 2015 05:21 PM