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Board Resolution to terminate plan?


AnnCK

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I have a client who is bundled with a daily vendor and the company is being sold as part of a stock purchase.  The daily vendor is saying it will take 6-8 weeks before they can even look at preparing an amendment to terminate the 401k plan.  We need to get the plan terminated ASAP because the buyer is requiring the plan to be terminated prior to the transaction.

I have read the BPD for the vendor and there is no specificity on how the termination must be accomplished (board resolution or amendment), just typical language about all accounts being 100% vested, no future contributions, etc.

If the client's attorney types up a Board Resolution to terminate the plan with an effective date prior to the acquisition, will this be sufficient to legally terminate the plan?  Then if the vendor wants to prepare some sort of amendment they can follow up with that later?

Thank you!!

 

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12 hours ago, EPCRSGuru said:

But I believe participant notification is also required, although I am on my phone and don't have any cites handy.

As a practical matter, contemporaneous participant notice is a good idea, but there is no advance notice requirement in the law (either for safe harbor or non-safe harbor plans) in the M&A context. 

I have heard several recordkeepers tell plan sponsors in this situation that a 30-day notice is required, but in my opinion there is no legal basis for that or any other advance participant notice (although I understand many recordkeepers require a minimum notice to begin processing the plan termination on their end, which is different from terminating the plan as a legal matter). 

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In my recent experiences, people in retirement-services providers have become so accustomed to so many things that call for 30 days’ notice that some of those workers reflexively presume any change calls for some notice.

Usually, they back off if the sponsor/administrator points out the absence of a statute or rule that requires notice.

But a service provider’s agreement might not obligate the service provider to process something as quickly as relevant law allows and the sponsor/administrator might prefer.

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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28 minutes ago, Peter Gulia said:

But a service provider’s agreement might not obligate the service provider to process something as quickly as relevant law allows and the sponsor/administrator might prefer.

This is incredibly important and accurate and, all too often overlooked. And I'm referring both to the agreement and to what might be allowed.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070

 

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8 minutes ago, Jakyasar said:

Out of curiosity, in a 401k plan, should you not tell the participants of pending termination informing them that there will be no further accruals?

Certainly. And in my experience plan sponsors always notify participants ahead of, or at the same time as, the termination date as part of the process. The discussion above (or at least my response) simply confirms that there is no fixed participant-notice period required by law

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Not even for safe harbor?. I have done one 401k/SH termination (SH was 3% non-elective) and asked the plan sponsor to provide a notice to the plan participants about the pending plan termination date which was the cutoff date for the deferrals as well as SH contributions. So, this is not required by law, especially the SH portion?

Sorry not a 401k expert, just thinking out loud and may be asking too many questions.

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Not in the M&A context. Treasury Reg. 1.401(k)-3(e)(4) allows the sponsor to terminate a safe harbor plan during a plan year. Within that subsection, (i) describes the normal, non-M&A termination rule, which does require 30 days' notice (by reference to the requirements of subsection (g)) but (ii) allows the plan to be terminated in connection with an M&A transaction without imposing any notice requirement (either directly or by reference to (g)).

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