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Guest 401kbee

Stock Purchase - Termination of a plan

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Guest 401kbee

Can anyone provide some insight on whether or not there are restrictions on terminating a 401(k) plan after the purchase agreement has been signed. The purchase agreement did not identify that the buying company was going to terminate the plan. Can anyone provide some info. on 401(k) distribution restrictions?

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Guest 401kbee
Do you want to talk about the difference between signing a purchase agreement and closing the transaction?

Sure - please explain both. Specifically on when the puchaser/buyer needs to identify the termination of a plan. I am assuming that there are restrictions from terminating a plan after the fact.

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The signing of a purchase agreement does not necessarily change ownership status. The agreement may provide for the sale to close at later time, when ownership will change. The closing may be contingent on any number of conditions.

If the plan is terminated before the sale is effective, the IRS believes that plans of the purchaser's controlled group of businesses are not plans in the same controlled group as the terminated plan, even though the newly purchased corporation is in the controlled group. See sections 401(k)(2)(B)(i) and 401(k)(10) of the tax code for one consequence and Treasury Regulation section 411(a)-11(e) for another consequence of terminating after the effective date of the acquisition.

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Guest 401kbee
The signing of a purchase agreement does not necessarily change ownership status. The agreement may provide for the sale to close at later time, when ownership will change. The closing may be contingent on any number of conditions.

If the plan is terminated before the sale is effective, the IRS believes that plans of the purchaser's controlled group of businesses are not plans in the same controlled group as the terminated plan, even though the newly purchased corporation is in the controlled group. See sections 401(k)(2)(B)(i) and 401(k)(10) of the tax code for one consequence and Treasury Regulation section 411(a)-11(e) for another consequence of terminating after the effective date of the acquisition.

Great, I this is exactly what I needed. thanks for the references.

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