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Hi, 

Plan is terminating due to asset sale and the sale will happen December 1st 2022.  Regular pay roll end on Nov 30th however they will be retention bonus post acquisition .  The terminating employer will happen they EIN and will be a participating employer. 

I feel this might be a controlled group or lead to a controlled group - Is it possible? 

Can they make the bonus payment post the plan termination? The plan will terminate in December and they are likely to start the process in Feb 2023. 

Can the seller be a participating employer? 

Thanks

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5 hours ago, PS said:

Hi, 

Plan is terminating due to asset sale and the sale will happen December 1st 2022.  Regular pay roll end on Nov 30th however they will be retention bonus post acquisition .  The terminating employer will happen they EIN and will be a participating employer. 

I feel this might be a controlled group or lead to a controlled group - Is it possible? 

Can they make the bonus payment post the plan termination? The plan will terminate in December and they are likely to start the process in Feb 2023. 

Can the seller be a participating employer? 

Thanks

 

 

You're going to have to clarify all your comments. I can't tell what is happening, especially with this bold part.

William C. Presson, ERPA, QPA, QKA
bill.presson@gmail.com
C 205.994.4070
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46 minutes ago, Bill Presson said:

You're going to have to clarify all your comments. I can't tell what is happening, especially with this bold part.

Sorry, The plan is terminating due to asset sale.  The seller company will keep they EIN and will be a participating employer in the acquiring company.  The sale will happen in Dec and post the sale the seller company will be doing an additional bonus to its participants. 

  • Since the seller will be a participating employer can this lead to a controlled group? 
  • when should the plan terminate? 
  • Can the seller still make the additional bonus to their participants? 
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I'm confused. The seller is selling their assets but continuing it's business? Who will the employees of the seller be after the sale?

Whether selling corp and acquiring corp are a controlled group after the sale will be determined by both companies ownership structure.

If they are a controlled group after the sale and selling corp adopts acquiring corp plan you have a single employer controlled group plan. If they are not a controlled group and selling corp adopts acquiring corp plan you have a multiple employer plan.

What are the goals in terminating the plan? Typically the terminations are done effective the day of or day before the asset sale, often contingent on the sale happening.

Does the seller still have a plan? Is the compensation for services to the seller?

But like Bill I'm confused as to what the goals are in both the original and and clarifying post.

If, how, and when seller plan is terminated would likely determined what distribution options participants in seller's plan may or may not have. Also if seller is terminating plan and it's a 401(k) plan that might affects it's ability to adopt acquires plan for 12 months after final distribution under the successor plan rules.

A lot to unpack here.

 

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2 hours ago, Lou S. said:

I'm confused. The seller is selling their assets but continuing it's business? Who will the employees of the seller be after the sale?

Whether selling corp and acquiring corp are a controlled group after the sale will be determined by both companies ownership structure.

If they are a controlled group after the sale and selling corp adopts acquiring corp plan you have a single employer controlled group plan. If they are not a controlled group and selling corp adopts acquiring corp plan you have a multiple employer plan.

What are the goals in terminating the plan? Typically the terminations are done effective the day of or day before the asset sale, often contingent on the sale happening.

Does the seller still have a plan? Is the compensation for services to the seller?

But like Bill I'm confused as to what the goals are in both the original and and clarifying post.

If, how, and when seller plan is terminated would likely determined what distribution options participants in seller's plan may or may not have. Also if seller is terminating plan and it's a 401(k) plan that might affects it's ability to adopt acquires plan for 12 months after final distribution under the successor plan rules.

A lot to unpack here.

 

this is what the client said, but I will check with them again 

 

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I would be interested to hear everyone's thoughts on whether a post-closing retention payment made by the seller, but based on continued post-closing service with the buyer, would be plan compensation (assuming the seller's plan has not been terminated by the retention payment date). 

Under 1.415(c)-2(b)(1), the default 415 definition requires the compensation to be paid "for personal services actually rendered in the course of employment with the employer maintaining the plan." Would a payment contingent on personal services actually rendered to a different, unrelated employer meet this standard?

The alternative definitions based on W-2 and 3401(a) don't include this exact phrase, but I think it would at least be implied.

Also, under the timing rules, I'm not sure this would fit into any of the permissible post-severance categories (and I think there would be, for plan purposes, a severance of employment at the closing). 

Would appreciate any thoughts.

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On 9/16/2022 at 4:11 PM, EBECatty said:

I would be interested to hear everyone's thoughts on whether a post-closing retention payment made by the seller, but based on continued post-closing service with the buyer, would be plan compensation (assuming the seller's plan has not been terminated by the retention payment date). 

Under 1.415(c)-2(b)(1), the default 415 definition requires the compensation to be paid "for personal services actually rendered in the course of employment with the employer maintaining the plan." Would a payment contingent on personal services actually rendered to a different, unrelated employer meet this standard?

The alternative definitions based on W-2 and 3401(a) don't include this exact phrase, but I think it would at least be implied.

Also, under the timing rules, I'm not sure this would fit into any of the permissible post-severance categories (and I think there would be, for plan purposes, a severance of employment at the closing). 

Would appreciate any thoughts.

EBECatty, if one assumes that the parties are acting at arm's-length, presumably the post-close retention bonus facilitates the seller's deal, and is in effect service promised by the seller to the buyer. So one could argue that the retention bonus is for service performed for the seller. If it's not, then there may be bigger problems with the payments, e.g. who should actually report and withhold. I have worked on many deals where the buyer is not yet set up to handle the seller's employees and so they remain on seller's payroll under a temporary leasing arrangement. That is not exactly the same, but seems similar.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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Thanks Luke.

I agree that, at least in my experience, these types of payments are often treated as wages from the seller. (Although I have had a buyer who insisted that seller-promised post-closing retention payments, along with employer-side FICA, be transferred from seller to buyer in a purchase price adjustment, then paid to the affected employees by buyer and reported on a W-2 by the buyer, for exactly this reason.)

The specific 415 language is interesting, though, in my opinion, and I think is a little broader than the similar provisions under 3401(a). In any event, if the seller is taking the position that the payment is wages from the seller for reporting and withholding purposes, it makes sense to treat the plan compensation accordingly. 

Assuming it's not a temporary leasing situation, and the seller has actually terminated the employees, would you treat a post-closing retention payment as 415 compensation under the post-severance timing rules? That seems to me a separate issue, i.e., it could still be "compensation," just not paid in time to be recognized by the plan.

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EBECatty, I agree that that it's tough to fit these sorts of payments into the the post-severance comp rules in the 415 regs. But if the payments are from the seller and we are somewhat comfortable that the seller is served by them enough that it can provide the W-2 and take the ordinary deduction (and not be required to simply take a reduction in the amount of capital gain realized), has there been a severance from service for purposes of these payments? As we know, severance is not defined under the Code except under 409A. I think it's a gray area. The safer route is probably the temporary employee leasing arrangement.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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