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Guest KLCarter

Merger Mechanics

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Guest KLCarter

Corporation A purchases Corporation B, now a wholly owned subsidiary of A. Both A and B sponsor defined contribution profit sharing plans. Corp A disolves Corp B. Ideally, we would like to merge the plans. Are there any considerations that would make freezing plan B the better option? We are not aware of any plan B problems that would taint A, but there's always that possibility.

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Guest KLCarter

To add to (or change) my original question . . . .

Can the employer (corp a) terminate plan B and require distribution (including a rollover at the employee's election)?

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Guest KLCarter
Treas. Reg. section 1.411-1(e)

Thank you . . .

since, in my example, the employer maintains another defined contribution plan, if the distribution is rolled over into the remaining plan, are their any caveats for the receiving plan? To what extent can the distributing plan taint the receiving plan?

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Generally, rollovers do not bring any taint with them if the receiving plan is not aware of any taint; if there is an actual problem but the receving plan was unaware, the solution is distribution and plan qualfication is not a concern. Check the regulations for the standards for due diligence. But since the distributing plan is not a stranger, the receiving plan may be less able to be ignorant and innocent.

Please understand the a rollover occurs only if there is a distribution. If the participant does not take a distribution, the transfer under Treas. Reg. 1.411-1(e) is not a rollover and any taint is imported.

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