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formeractuary

Serial divestitures re: terminating NQDC

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A business unit with a frozen NQDC plan was sold to private equity several years ago. Seller retained the NQDC plan as part of the deal, but the seller missed the one-year window to begin distribution of all accounts still left in the plan. Therefore, seller still administering frozen NQDC plan for non-employees.

The private equity firm recently sold that same business unit to another private equity group.

Can the original seller take the position that this new transaction is a distributable event (i.e., terminate the plan with respect to those involved in the transaction)? It's clear from my perspective that the Seller had the right to distribute the accounts upon the original transaction (but did not proceed because of lack of awareness of that provision), so can the same analysis apply in the second iteration?

The plan document indicates that the Company (the original seller in this case) can accelerate distributions upon a change in control. It's not clear if this second transaction could be considered a change in control since the affected employees don't work for the plan sponsor (the original seller).

External counsel so far has taken the position that we cannot liquidate the plan in light of the new transaction, but I continue to seek other opinions.

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I'm assuming that when you say the plan can accelerate distributions upon a change in control that you are talking about the voluntary plan termination rules in §1.409A-3(j)(4)(ix)(B) and not a change in control payment distribution event (which would be a must distribute). 

The change of control rules are defined in  §1.409A-3(i)(5) with a lot of nuance.  The original seller does not seem to be a relevant corporation to the subsequent corporate transaction per §1.409A-3(i)(5)(ii)(A)

Something to think about: with the "same desk" rule applying, who is letting the original seller know when there is a separation?

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formeractuary, why do you think they have to fit into the c-in-c termination rule (1.409A-3(j)(xi)(B)) and can't use the general termination rule (1.409A-3(j)(xi)(C))?

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