Jump to content
Sign in to follow this  
Guest Lex

Asset Sale

Recommended Posts

Guest Lex

Here is the situation:

Company A has 2 divisions- all employees are covered in the 401k Plan sponsored by A.

Company A sells one division to an unrelated company in a asset sale- the employees of that division will become employees of purchasing company.

Suppose that unrelated company has its own 401k Plan.

1) It seems these employees would have a distributable event and the same desk rule would not apply (assuming the Plan is amended for EGTRRA). Agree or am I missing somthing?

2) Are there any options to prevent this from being a distributable event?

Share this post


Link to post
Share on other sites

You could have a plan-to-plan transfer of assets before any termination distributions are processed, but that might be hard to accomplish practically.

If the plan was updated for EGTRRA to allow distributions upon a severance from employment, then 411(d)(6) will prevent you from amending the plan to remove that distribution option.

Share this post


Link to post
Share on other sites

What did the purchase agreement provide regarding transfer of benefits and crediting of service of the acquired employees?

Share this post


Link to post
Share on other sites
Guest Lex

The pruchase is in the discussion stage-no agreement has been made. Any suggestions with regards to these items?

Share this post


Link to post
Share on other sites

One option is to spin-off the division being sold into separate plan and include language in purchase agreement to merge new plan into buyers plan.

Another option is to give the employees the right to take a distribution or rollover into buyers plan or IRA.

At the discussion stage you have many options - discuss with competent advisors.

Good luck!

Share this post


Link to post
Share on other sites

The agreement can provide for a trustee to trustee transfer of assets of all employees who are being transferred under the terms of the deal. Or the there can be no provision for asset transfer and the employees can rollover the assets to the acquirors plan if there is a provision to accept rollovers. If acquiror's plan accepts rollovers then there must be due dilligence to make sure that the seller's plan is qualified under IRC 401(a). Also the purchase agreement should contain a provision about crediting of service of the transferred employees under the acquiror's plan. Usually the provisions credit all service with seller for eligibility and vesting purposes under acquiror's plan.

Share this post


Link to post
Share on other sites

Your choices might also depend on what is meant by an "asset sale."

For various tax reasons, it is not uncommon today for corporate structures to include LLC subsidiaries. In fact many times LLCs are set up specifically for the purpose of a corporate transaction. The LLCs are frequently "disregarded" for tax purposes. The transaction will be discussed as an "asset sale." The IRS generally likes the company to be treated the same for both plan purposes and other tax purposes.

But this would actually be the acquisition of a separate legal entity. If the LLC is the sponsor of the plan, then it is likely that the sponsorship of the plan would actually automatically follow the LLC to the acquiror's group even if the agreement doesn't specifically provide. That is different from a true asset sale where the plan is left behind unless sponsorship is specifically transferred as part of the deal.

I don't believe that there is published guidance about how the plan is affected for various purposes when there is the transfer of an LLC interest that it treated as an asset sale. But I believe that this would be treated as a "stock sale" for at least some plan purposes.

The bottom line is that I'd make sure that you and your plan advisors are aware of the exact nature of the transaction (don't rely on a simple description from the transaction advisors about whether its a "stock sale" or "asset sale"). And try to get specifics about what happens to the plan into the agreements.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

×
×
  • Create New...