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asset sale, 401k overlooked


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I have a question similar to the below thread, my question is the same as QP-Guy which was never answered. Buyer purchases the assets of another company. The seller maintains a 401k plan. The attorney's overlook/never discuss the implications of the 401k and the deal closes with no mention of the 401k. The buyer and seller then ask what happens to the 401k. My question is, all employees of the seller incurred a distributable event on date they were terminated by the seller and hired by the buyer. Now, (one month later) the buyer wants to assume sponsorship of the sellers plan to avoid defaulted loans, distributions or any disruption to the sellers plan. I don't think it works that way. 1.401(k)-1(d)(2) references a change in sponsor but I have always seen the change in sponsor in connection with the buy sell agreements at the time of closing. 

Can the distributable event be undone after closing? 

Thank you

 

 

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If you can get all of the participants to repay their distributions back to the plan, it could probably be undone. You would treat it as an overpayment and correct under EPCRS, since the distributions were made in the absence of a distributable event.

However it might be simpler for the new employer just to start up their own 401(k) plan, and have the participants roll over their loans into the new plan. Since it was an asset sale there should be no successor plan issue.

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FYI - this comes from the EOB and answers my question. However, if the buyer takes over the sellers plan after close, could the plan continue to operate as is, but essentially any participants involved in asset purchase/change of employer, would be eligible for a distribution on assets accrued at the time of the sale? All assets accrued afterwards would be subject to the distribution rules as defined in the document. This may be very difficult to administer. Thoughts?

3.b.2)a) Acquisition documents need to address whether purchaser is taking over seller’s plan. If the purchaser intends to take over the seller’s plan (or a portion of the seller’s plan), that intention should be addressed in the acquisition documents and steps to assume that responsibility (e.g., trustee-to-trustee transfer of the affected account balances from the seller’s plan to the buyer’s plan, merger of the plans, or formal adoption of a separate plan formerly maintained by the seller) should be taken as soon as administratively feasible. In fact, if this is not addressed in the acquisition documents, the employees of the seller who go to work with the buyer will have a claim for distribution from the seller’s 401(k) plan on account of severance from employment service. This underscores the importance of addressing qualified plan issues in acquisition documents, particularly if the seller does not intend to have distribution become available to the employees who are leaving the seller’s employment on account of the asset sale.

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1 minute ago, C. B. Zeller said:

If you can get all of the participants to repay their distributions back to the plan, it could probably be undone. You would treat it as an overpayment and correct under EPCRS, since the distributions were made in the absence of a distributable event.

However it might be simpler for the new employer just to start up their own 401(k) plan, and have the participants roll over their loans into the new plan. Since it was an asset sale there should be no successor plan issue.

we posted simultaneously. No distributions have happened yet. My worry is a participants claim to distributable event. 

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19 minutes ago, Bird said:

Would(n't) it be similar to an employee who terminates, then is rehired?  Yes they had a distributable event but if the new company adopts the plan, or merges the old one into a new one, I think the distributable event goes away legitimately.

Thanks!! I think you are right and that was the connection I was missing.

 

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