Admin & Forfeiture Accounts in Merger

[Guest Bibbons]

Most of Company A was sold to X with all employees except 40 going to purchaser. The 40 remaining 401(k) participants were subsequently merged (or transferred) to another plan (ADP). The problem is that on the date of merger Company A had a significant forfeiture balance along with other accumulated funds in what was called Mr. Administration account. By agreement, a portion of earnings went into this account to pay plan expenses. The combined non-participant balance exceeded $240,000 at date of merger. In research I've seen it both ways ... that all merger transfers must be in participant accounts ... or that the non-participant accounts can be transferred. Theoretically these balances should have been allocated to participants at each year end but Company A elected to accumulate in anticipation of future plan costs.

[masteff]

This probably should be referred to your ERISA atty. If you don't have one, then based on this issue, I'm going to suggest you need one.

Which is to say, I may have an opinion but I'm not touching it w/ a 10 foot pole.

[Guest Bibbons]

Most of Company A was sold to X with all employees except 40 going to purchaser. The 40 remaining 401(k) participants were subsequently merged (or transferred) to another plan (ADP). The problem is that on the date of merger Company A had a significant forfeiture balance along with other accumulated funds in what was called Mr. Administration account. By agreement, a portion of earnings went into this account to pay plan expenses. The combined non-participant balance exceeded $240,000 at date of merger. In research I've seen it both ways ... that all merger transfers must be in participant accounts ... or that the non-participant accounts can be transferred. Theoretically these balances should have been allocated to participants at each year end but Company A elected to accumulate in anticipation of future plan costs.

For the audited 401(k) financial statement I've listed the $240,000 as a receivable from the successor trustee under the theory that the amounts should never have been transferred as non-participant account balances. The assumption is that the amount will be repaid by the successor trustee with allocations within the Company A plan based on the plan dictates. The remnant subsidiary of Company A (the 40 employees) will also be responsible for repaying the amounts they used in the ADP plan, such as for offsetting employer contributions and paying audit fees, etc.

The ten-foot pole comment is I'm sure related to the failure of Company A to allocate non-participant balances to participants at each year-end. According to the IRS the allocation should be made annually and not just to the remaining 40 participants at merger date.