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This amount should just be earnings that goes into the participant's account. These lost earnings are technically interest paid on a loan the employer is considered to have taken from the participant's account during the period of time the loan payment was being held by the employer before being sent to the trust. The participant did not pay this interest, the employer did. It is considered like the employer took a separate loan from the participant's account and must pay interest on that separate loan. It is the earnings that were lost (should have been earned in the participant's account( because the payment of the loan repayment was not sent to the trust on time Accordingly, the payment of these lost earnings should not affect the amortization schedule of the original loan. Again, due to it being an untimely deposit of the loan payment, it is not an amount owed by the participant on the participant's loan but an amount owed to the participant by the employer due to its prohibited transaction loan. Make sense?

@khn perhaps provide the specific language of the purchase agreement. The word "removed" is not a term that I have ever seen in a purchase agreement (as it is ambiguous at best) and, from the responses above, it appears the responders are struggling with this concept. Being removed could simply mean that no one will have any obligations to make further contributions to these employees under the plan effective as of closing. I mean your client would want some form of a withdrawal of participation agreement that says this at a minimum (along with all the other required provisions...whatever they may be).

khn, assuming your description of the deal agreement, your client might not know what set or series of retirement plan transactions would satisfy the business deal until there is communication involving (at least) the seller and the buyer, perhaps each plan’s administrator (if either plan’s administrator is distinct from, respectively, the seller or the buyer), and maybe each’s lawyers and accountants. For example, a spin-off, even if otherwise a nice idea, might be a nonstarter if the acquirer’s plan won’t accept it. If the deal teams didn’t communicate about these points more fully and sooner, that’s disappointing. Deal work often happens that way. Even if it’s now only days until a closing, your client might want to surface some remaining retirement plan questions.

Spin-off can be date of acquisition with the plan document being a copy of the current document amended to state that the sponsoring employer is the participating employer being spun off.

Could that sentence be interpreted as "marked as terminated"? There's no way, operationally, to 'remove' anyone quickly.

How about a spin off and merger? I know there is a lot of queasiness about plan mergers, but I think the concerns tend to be exaggerated. Or just a spinoff, as suggested by Bill Presson. Spinoffs occur as of the spinoff date, no matter how much time it takes for asset transfer, plan documentation, and other administrative matters. Some dates are more difficult than others.

Removing the participating employer on the transaction date is fairly easily done. I can’t imagine “removing” the participants as of the transaction date. It’s either a distribution or a spinoff and that will all likely take way more time.