BTG Posted January 25, 2020 Share Posted January 25, 2020 I have a bit of a reverse spin on the usual "severance from employment" issue. Holding Company owns Company A and Company B. Company A sponsors a plan that covers everyone in the group. If Company A is sold in a stock deal and takes the whole plan with it, clearly Company A employees have not had a severance from employment. There is plenty of guidance on that. But what about the employees of Company B? I would think they have had a severance from employment because the plan sponsor is no longer part of the controlled group, but I haven't found anything to confirm that. I can see how it would be difficult to explain to Company B employees that they have experienced a severance from employment, even though their company wasn't the one sold. If this is indeed a severance, I assume it could be avoided by spinning off the portion of the plan that covers Company B prior to the transaction. I have been surprised that I have not found any guidance on this yet. I know this is not the typical M&A situation, but I have to imagine that it still happens fairly regularly. Thoughts? Thanks! Link to comment Share on other sites More sharing options...
Griswold Posted January 27, 2020 Share Posted January 27, 2020 I think what you have is a multiple employer plan. Some volume submitter plans contain language automatically amending the plan to a multiple employer plan upon certain situations. Link to comment Share on other sites More sharing options...
Luke Bailey Posted January 28, 2020 Share Posted January 28, 2020 Most likely the plan says that it covers employees of Company B and of members of B's controlled group that have adopted plan. Because A is no longer in B's controlled group, B's employees are, under such language, no longer eligible to participate (unless the plan is amended to make it a multiple employer plan, as Griswold suggests), and because they have ceased to be employed by the 414(b)/(c) "employer" that maintains the plan, they have experienced a separation from service. For a 401(k) plan, see Treas. reg. 1.401(k)-1(d)(2) and the definition of "employer" in 1.401(k)-6. Luke Bailey Senior Counsel Clark Hill PLC 214-651-4572 (O) | LBailey@clarkhill.com 2600 Dallas Parkway Suite 600 Frisco, TX 75034 Link to comment Share on other sites More sharing options...
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