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O.K. to continue 401(k) of seller after asset sale? Any issues to con

John A

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A company with a 401(k) plan wants to sell substantially all of its assets to another company. The prospective seller would like to simply continue the 401(k) plan as if no sale had occurred. Does anyone see any problems with this? What further questions need to be asked? Thanks.

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Guest Evan Hodgens

The reason for wanting to do that escapes me, but assuming the employees are being sold or whatever to the buyer, you've got a plan termination. And people are going to want their money. Plus you have to keep the thing compliant, file forms, yadda yadda. Who pays for that?

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Guest Barnard Walsh

Buyer of company can continue plan. Vesting continues and there is no plan termination, if the plan document permits. I think this is the approach.

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Seller will get no benefit from maintaining the plan even if it can. It will continue to rack up administrative expenses attributable to someone else's employees.

Seller should terminate the plan prior to the sale so that its former employees can take distributions and roll them into buyer's plan or elsewhere.

Merging seller's plan into buyer's existing one is frought with danger if there were any qualification problems prior the transaction. If you represent buyer, get it terminated prior to the closing.


Keith R. Kost

Baker & Hostetler, LLP

3200 National City Center

1900 East Ninth St.

Cleveland, OH 44114-3485

(216) 861-7290


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Guest Mike Pruett

In your inquiry, you note that the plan sponsor will not continue after the disposal of the business. You must consider the same desk rule. There is some question whether a termination of the plan in the 12-month period prior to the liquidation of the business results in a distributable event with respect to employees hired by a successor entity.

If the sponsor is liquidating, there is no one to continue the plan, with respect to that entity.

From a practical standpoint, the successor entity, if it maintains a defined contribution plan, may wish to exclude the acquired employees (if any) for 12 months following date of hire to avoid any potential issues with respect to being deemed to be a sponsor of the liquidated plan sponsor's terminated 401(k) plan.

Finally, the successor employer's plan should not accept any rollover or transfer amounts from the terminated plan to avoid any possible taint.


Mike Pruett

Cache Pension Services, Inc.

4720 Business Park Blvd., Ste. 32

Anchorage, AK 99503-7124

(907) 561-4464, ext. 203

fax (907) 561-4203

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