Employee leasing plan as successor 401(k) plan. (Matthews on 401(k)).

One of the more complex decisions relating to the administration of a 401(k) plan is whether a distribution can be made to participants who are still employed when a 401(k) plan is terminated. The tax code prohibits a distribution of salary deferrals in such a situation when there is a "successor plan." The use of an employee leasing company's (also called a professional employer organization, or PEO) services will frequently involve a plan termination. A lingering question is whether a distribution may be made to employees who have been transferred to the leasing company who are then eligible to participate in the PEO plan. A recent private letter ruling helps highlight IRS …