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Formal Plan Termination

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2 replies to this topic

#1 commishvp


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Posted 31 October 2006 - 04:31 PM

The client is acquired in a stock acquisition. They have determined they want to proceed with a formal plan termination. They would like to be able to distribute the account balances of the employees who are not retaining their employment than distribute the remaining balances after the favorable letter of determination is received.

Any creative solutions?

#2 austin3515


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Posted 31 October 2006 - 07:36 PM

LEt's jump back a step: Is this a 401k plan? If it is, you can't distribute the 401k account balances even under termination if the employees are covered by the acquiring companies plan (any DC plan, even it is not a 401k plan).

The only exception to this is if one Big Company acquired a wholly owned subsidiary of another Big Company. The exception says tht in this situation, the employees are treated as having a severance from employment, so the successor plan issues refered to above are irrelevant.
Austin Powers, CPA, QPA, ERPA

#3 namealreadyinuse


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Posted 01 November 2006 - 11:36 AM

Plan termination is not a reason for holding up distributions that are othewise due under the plan. If people have a severance from service and the plan says they should be paid out on X date, you have to do that even if the plan is terminating. That (just following the existing plan terms) will probably allow you to do what you want to do.

The other point raised by austin is that retained employees won't be (probably) entitled to distributions. You can still terminate the plan, but you will have to spin off their accounts to the buyers plan instead of offering each retained employee a distrubiton right. No big deal really, though.