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Physician Splits into Two Groups, 401(k) Plan


TPA Bob
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We have a physician group "A" that split into two groups B and C effective January 1, 2017.  They continued to maintain the existing 401(k) plan for 2017 to date.  They will each adopt their own plan effective January 1, 2018.  In my mind this will be handled as a spin off from Plan A with the assets transferred to B and C.  The participants would not have incurred a severance of employment.

The national retirement plan Company who currently has the A plan is holding firm that the participants will have to elect distribution.  Their basis I think is that Plan A is terminating.

Seems simple enough to me that Plans B and C represent successor employers  and the retirement plans are replacement plans and would not allow for distributions.  

Any thoughts would be appreciated.

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1 hour ago, TPA Bob said:

To clarify Plan A is going away.  The new entities (B and C) will be establishing their own retirement plans

At the risk of getting overly "technical" I would disagree that Plan A is going away.  It will be continuing either through it's current existence amended to account for the new sponsor (a new entity, perhaps), and to spin out (or in your parlance "split" into two).  The ONLY way a plan goes away is if it actually terminates.  It may morph in form, and may change service providers, but absent a "termination" it continues in existence.

In your scenario, without knowing the gory "corporate" details, it appears as though two new entities were formed, to which certain assets of the original company were distributed to (which may be intangibles, like "patients" etc) and employees.  Those two entities then became participating employers (I hope) in Plan A.  At the end of the year, I see two choices (possibly constrained by decisions previously made).  The plan can be "split" and the two new entities can each become "sponsor" of their share (with now distributable event occurring) - and with "Plan A" continuing in existing in the form of two surviving plans - each now free to go their own way, or Plan A can be terminated - and then we can have a whole discussion about successor plans (since the new entities have a plan - as participating employers in Plan A).

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1 hour ago, MoJo said:

At the risk of getting overly "technical" I would disagree that Plan A is going away.  It will be continuing either through it's current existence amended to account for the new sponsor (a new entity, perhaps), and to spin out (or in your parlance "split" into two).  The ONLY way a plan goes away is if it actually terminates.  It may morph in form, and may change service providers, but absent a "termination" it continues in existence.

I agree, and don't think it is overly technical since that's the key to not having a plan termination. 

It might help to think of the A/B/C definitions this way:  Plan C is spinning off from Plan A, and Plan A will  change its name to Plan B.

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Thanks for this input.  I agree with the analysis that Plan A will be continuing as Plan B and Plan C is spinning out.

As a conclusion, the national provider has now agreed that this in not a distributable event  and that employees who went from Company A to either Company B or C will not have the option regarding their funds.  Thanks again to Mojo and Bird.

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