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jpod

410(b)(6) transition rule

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Facts are fairly simple. Corp A owns 100% of Corp B, operating separate businesses. Each has a 401k plan (calendar plan year) with different structures and each has comfortably passed ratio percentage year after year. Before the end of 2015 Corp A will sell virtually all of its assets to an unrelated buyer, and all of the employees will go with buyer except Corp A's CEO and CFO who will stay on payroll for a while to handle a variety of clean up and other matters and will receive compensation. Corp A's plan will not be terminated. CEO and CFO will be HCEs for 2016. Does Corp A's plan get the benefit of 410(b)(6) through 12/31/16?

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410(b)(6)(C ) has a "you're okay for coverage" rule that applies for becoming or ceasing to be member of a controlled group and if the coverage under the plan is not significantly changed during the transition period.

Selling assets, not stock? I don't see how that changes the controlled group.

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The regulations extend the transition rule to asset sales, so there is no doubt about that. My concern is whether in an asset sale the transition rule is available to the plan left behind with the seller that would otherwise flunk coverage due to the departure of all employees except a couple of HCEs.

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Thanks for reminding me. Treasury Regulation 1.410(b)-2(f) "the terms 'acquisition' and 'disposition' refer to an asset or stock aquisition, merger, or other similar transaction involving a change of employer of the employees..."

Also FWIW, I agree with the sorcerer.

If, after the transaction, they also sell off B as well and then they set up a new plan (DB plan of course) for just those that now remain behind with Corp. A (the HCEs), then the IRS would address that from the podium (at least that's how they've answered that in the past).

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