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Employee terms and goes to work for the other division


pensionnube

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An employer recently purchased another factory in another state. Currently we are within the transition rule period (not sure if it matters).

The company that was aquired also has its own 401(k) plan that has yet to adopt the purchisors plan. An employee from the purchasing company is leaving that company to work at the new facility. The plan sponsor wants to term him and give him a rehiredate and consider him as an employee of the other new firm. They want to distribute his assets to the new companys 401(k) plan. In essence he would no longer be an employee of company A but now an employee of company b.

Can we do this?

Please bare with me i am a nube, if more info is needed i will be happy to oblige.

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I would say "no" he can not treat this person as terminated.

The transition rule is about the coverage test. It doesn't change the fact this is now a controlled group and this person never left the employment of the controlled group.

Even if someone thinks I am wrong regarding the answer I would still say the answer is found in the control group rules. Either these two companies need to be treated as the same employer or not under those rules. I am thinking they have to be treated as one employer.

I would be interested in other perspectives but that is mine.

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No, but the arrangement can essentially be accomplished by plan-to-plan transfer, probably without adverse effect on the section 410(b)(6) transition relief. I think service follows the participant to the new plan in a transfer. If you are inexperienced, someone else needs to be advising about the arrangements. Transfers are often misunderstood.

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Also, it would be prudent for A to rethink why it wants to do this. The result might be unnecessary administrative cost.

Or worse. It's easy to see that "...consider him as an employee of the other new firm..." can lead to incorrect service records.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Or worse. It's easy to see that "...consider him as an employee of the other new firm..." can lead to incorrect service records.

Is the employer thinking that by doing this they won't have to credit the prior service and can save a few bucks on all benefits because he's a new hire with the other company? I've heard of that many times. They are always shocked to learn that it doesn't work that way.

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