It’s a question I get often, the 401(k) plan sponsor wants to terminate their plan and start a new one.
Can’t do it. 401(k) plans have a unique rule (actually 403(b) plans also have it) called the successor plan rule.
The successor plan rule states that a plan sponsor with a terminated 401(k) plan can’t start a new one within 12 months after all the assets from the terminated plan are distributed.
Why do we have that rule? To circumvent plan sponsors from terminating a 401(k) plan, distributing deferrals to participants pre- age 59 1/2, and then starting a new plan.
When dealing with plan issues, understand the successor plan rule may keep you from fixing the situation by terminating a 401(k) plan.
