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A veterinary practice was a sole proprietorship. The retiring veterinarian sold the practice to a young veterinarian. The retiring veterinarian's 401(k) plan was terminated, and participants were given distribution paperwork when it was time to wind down the plan.

The practice has continued under new ownership (sole proprietor), with a new EIN, etc. From an employee perspective, all employees have remained and continued their service as if nothing had changed.

The new veterinarian started a new 401(k) plan immediately, so there was no gap in providing a retirement plan benefit for the employees. Some employees had elected to roll their funds from the prior practice's plan into the new plan, and others did not.

For those employees who did elect to roll their funds from the prior practice's plan into the new practice's plan . . . is that considered related rollover money or unrelated rollover money?

I know this question is beyond basic, but I can't find any information that points directly to this kind of situation.

Thanks!

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Assuming that you accurately described the corporate aspects of the transaction and that you did not omit any aspects of the plan transsactions, the money rolled into the new plan is rollover money. There is no meaningful concept of "related rollover money" or "unrelated rollover mioney" -- at least no valid concept that has general acceptance of those terms. The assumptions determine the conclusions, so if you are not completerly confident with the corprate aspects and understand how any diferences woudl affects the final conclusion, then you need to ask soem other questions, such as nature of the acquisiton (equity or asset sale) and timing of the termination of the original 401(k) plan.

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The definitions of "related rollover" and "unrelated rollover" are in

1.416-1 T-32 Q. How are rollovers and plan-to-plan transfers treated in testing whether a plan is top-heavy?

A. The rules for handling rollovers and transfers depend upon whether they are unrelated (both initiated by the employee and made from a plan maintained by one employer to a plan maintained by another employer) or related (a rollover or transfer either not initiated by the employee or made to a plan maintained by the same employer). Generally, a rollover or transfer made incident to a merger or consolidation of two or more plans or the division of a single plan into two or more plans will not be treated as being initiated by the employee. The fact that the employer initiated the distribution does not mean that the rollover was not initiated by the employee. For purposes of determining whether two employers are to be treated as the same employer, all employers aggregated under section 414(b), © or (m) are treated as the same employer. In the case of unrelated rollovers and transfers, (1) the plan making the distribution or transfer is to count the distribution as a distribution under section 416(g)(3), and (2) the plan accepting the rollover or transfer is not to consider the rollover or transfer as part of the accrued benefit if such rollover or transfer was accepted after December 31, 1983, but is to consider it as part of the accrued benefit if such rollover or transfer was accepted prior to January 1, 1984. In the case of related rollovers and transfers, the plan making the distribution or transfer is not to count the distribution or transfer under section 416(g)(3) and the plan accepting the rollover or transfer counts the rollover or transfer in the present value of the accrued benefits. Rules for related rollovers and transfers do not depend on whether the rollover or transfer was accepted prior to January 1, 1984.

Based on your description, the rollovers in question are both initiated by the employees and rolled to the plan of another employer, which would make them unrelated rollovers.

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  • 2 years later...

Maybe this has been answered above, but my head is spinning after a phone call. 

Have a 401(k) plan that was comprised of three auto dealer stores with common ownership. The owner sold off two stores and retained the third. One of the Non-Key Employees with a rather sizeable balance was initially part of the two stores that were sold off and her assets transferred with her. 

About two months later she went to work for the store that was retained by the owner and moved her assets back into that plan. 

Question - would her assets be added back in for purposes of determining top-heavy status?

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