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Asset Acquisition


Guest MsTwizz
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Guest MsTwizz

Hello Everybody,

I am a controller of a company who just acquired another larger company who has a Safe Harbor 401K plan. We, the acquirer, do not have a plan.

We are adding the parent company employees into the acquired 401K plan.

The plan is administered by a payroll company.

My concerns are:

1. The plan name is still named the subsidiary name 401k plan. The employees of the parent company are not employees of the acquired company. Shouldn't the plan name be changed to the parent company's name and it's EIN#?

2. Control groups and testing.

3. Board resolutions? Plan amendments needed?

Unfortunately, our management sees this as an afterthought and everything is left for me to figure out. I do not trust the payroll company 401K department to do this correctly. He just wants me to write a letter to change the plan name. Don't we need to amend the plan to add the parent company employees??

Thank you for your comments and knowledge on this!

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Can we start by clarifying one thing? The title of the thread you mention an asset acquisition. The company you acquired was via an asset purchase and not a stock purchase, correct?

Or put another way someone still owns the other company as they are the shareholder(s) or that company, correct? That company might not have any assets but your firm doesn't own the stock, correct?

I ask because if you don't own the stock of the company who is sponsoring the 401(k) plan I am not sure you can even use their 401(k) plan. You might need to set up your own plan if you want everyone to have a 401(k) plan.

Can you just give us a little more details on the stock ownership relationship between the two companies?

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1. The plan name is still named the subsidiary name 401k plan. The employees of the parent company are not employees of the acquired company. Shouldn't the plan name be changed to the parent company's name and it's EIN#?

You're probably 1/2 right on this one. My understanding is that the plan name isn't super critical and could just as easily be the "I'm scared of clowns 401k plan". You're probably on a prototype plan which means you don't have an individually designed plan but rather have a plan that has a core document and then an adoption agreement which specifies certain choices about how your specific plan will work. That adoption agreement is what may need to be updated to reflect the other company. I say may because we need the info about ownership that ESOP Guy talks about above.

In looking at this thread: http://benefitslink.com/boards/index.php?/topic/54649-is-an-amendment-necessary-for-plan-sponsor-name-change/ it seems to me that you should figure out how your plan defines certain key terms like: employer, employee and plan sponsor.

The payroll company should be able to provide a boiler-plate board resolution to include the other company as an employer and if desired to make the parent instead of sub be the plan sponsor. Oh, and to change the plan name if desired. One suggestion is to use a generic phrase like "and participating subsidiaries" in the title to minimize future changes. (with the caveat about ESOP Guy's ownership questions)

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Guest MsTwizz

Espo guy - yes we acquired the assets, not a stock purchase. The stockholders of our company, the acquiring company, own stock in the parent company, which in turn now owns the subsidiary, the newly acquired company. Maybe I'm not answering your question correctly, but there are no other stockholder's but the stockholder's of the parent company.

Also, I had our counsel look at the acquisition paperwork and he said there was no mention about how to handle the current 401(k) plan.

yes, masteff, we are in a prototype plan. In fact, I discovered that they are a Safe harbor matching 6% of 100% of deferral. Outside of the plan, they manually calculate an additional match on the next 2% of deferrals and gross this up! This they do this because the company used to have an 8% match but the payroll company put them in a Safe harbor plan and they could no longer match up to 8%.

Thank you for your comments!!!

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I think I agree with recline46 you don't have a plan. I must admit I didn't fully understand your answer to the ownership question but the one thing that sounds clear is this:

If it is true that none of the shareholders of your company own any of the shares of the company you bought the assets and that company is still the sole sponsor of the 401(k) plan then none of your employees can participate in the 401(k) plan.

It would be like an Exxon employee trying to participate in the IBM 401(k) plan.

I am not trying to spend your money but you might want to get some legal advice from an attorney that specializes in ERISA issues or might want to find a local TPA firm to help you. For one thing if people want to make an 8% match then someone ought to be finding a solution to make that happen instead of some payroll company telling their client how they ought to do things. After all if they are willing to give people 100% vesting like a Safe Harbor plan demands come up with a way to get most if not everyone the 8% match. There are some pretty clever 401(k) people out there (including people on this board and by the way I am not one of them) who should be able to get you a plan that meets your goals and not your service provider's goals. It also sounds like you could use some help from someone who could spend some time with you making sure they have the correct facts and getting the plan set up correctly.

Off soap box now regarding a service provider telling a client how it is going to be done.

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Guest MsTwizz

I agree ESOPguy!!!! It's a matter of making management aware that this is important stuff.

Thank you for your knowledgeable comments!!!!

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