bp parv

As wisely suggested by @Peter Gulia, you are assuming that Section 414 common control exists based on the statement that "Joe owns 100% of GLP, and Joe control of governance over HSB". I would not automatically assume that this creates §414(c) common control. The regulation speaks in terms of one organization controlling or being represented on the other organization's governing body. Common control by the same individual is not expressed as cleanly as the ordinary brother-sister ownership rules applicable to non-exempt entities. I would re-read the Treas. Regs and dig deep into the facts on this. As further wisely suggested by @Peter Gulia, please make certain that you understand the service provider relationship to the applicable employer (i.e., PEO, leased employee, etc...) Assuming the entities are in fact under Section 414 common control, and the service providers are common law employees, you state that "Sometimes employees of GLP become employees of HSB and vice versa." I take this to mean that the time period between being "called" an employee of GLP and HSB is fairly short (one day to one month). If so, I don't believe that there is a "severance from employment" allowing for a distribution from a qualified plan. Furthermore, the former GLP employee's account balance under the GLP plan is not automatically transferrable to the HSB plan.

The authority you are referring to is from a 2015 ASPAA annual conference Q&A with the IRS. The question involved a participant who had a valid home purchase hardship, received the money, and then the home purchase fell through. In that case, the IRS said that there was no mechanism to return the funds and as a result the participant had gross income through constructive receipt at the time of the distribution. But, those are not the facts here--the participant has yet to receive the money and it appears that the administrator can cancel the check. I don't know of any IRS guidance that says that the mere cutting of the check constitutes constructive reciept. In this case, I could argue that there is no constructive reciept: Treas. Reg. § 1.451-2(a) provides that income is constructively received when it is credited to the taxpayer's account, set apart, or otherwise made available so that the taxpayer may draw upon it at any time. I would argue that if the participant has never received the check and cannot get the money because the administrator stops payment, the money is not yet available to him. Also, take a look at IRS Information Letter 2006-0045, the IRS explains that checks sent through the mail generally are income when the taxpayer actually receives them, unless the taxpayer had access to or control over the check earlier. I don't think constructive receipt is a forgone conclusion here.

@mming, you are referring to the IRS' "complete discontinuance" position, which as you know is a facts and circumstances analysis. If a PS has "completely discounted" PS contributions, then all participants must become 100% vested in order for the plan to maintain its tax-qualified status. The plan sponsor here has apparently made the determination that there has been a complete discontinuance. The problem, as you correctly imply, is that the "complete discontinuance" doctrine is not clear. So, for example, you ask if participants entering the plan after the complete discontinuance also become 100% vested? If you read the scant IRS guidance on this issue, the answer would be yes, although that seems like a ridiculous windfall should the plan sponsor finally decide to make a PS contribution in the next few years where under a normal vesting schedule they would only be 20% to 40% vested. And if the plan sponsor is always intending to make a PS contribution but simply cannot, when exactly does the complete discontinuance occur? Furthermore, if the plan sponsor does begin making repeated and substantial PS contributions in the future, does that require a separate vesting schedule for those new contributions? My belief is that the IRS is purposely vague on this issue because they would prefer that you terminate the plan. My thinking in your case is that plan termination is a much cleaner course of action if you are expecting new employees/participants in the plan.

The four physicians' corps and the ABC Medical corp very likely qualify as an A-Org type of ASG under 414(m) if the physican corps or the 100% physician owners either "regularly perform" services for the ABC Medical corp or are "associated" with ABC Medical Corp in performing services to independent third parties. I believe that the physicans' corps and ABC Medical would be deemed to be "services organizations." If the "regularly perform" or "associated with" can be verified, then they are related employers, and they should sign participating employer adoption page retroactive to 1/1/2025. If they are not related, they can still sign if your plan doc allows for a MEP (and they are okay with being a MEP).

I'd like to reiterate the points made by @Peter Gulia and @david rigby. As TPA (I assume that is your role) please allow the client's attorney/client to instruct you on how they wish to treat the seller's 401(k) plan pursuant to this transaction. Reach out to them, and ask for the directive. You have stated some facts, which as pointed out by @david rigby may be inconsistent. For example, the seller's employees are "terminated" on the effective date of the stock sale. While this could happen in a stock sale, it would not be solely as a legal consequence of the stock sale itself. This suggests that the transaction is being structured as an asset sale. But, it's not clear. Also, if the seller's 401(k) is a SH plan, the seller may terminate the plan without the 30 day notice if the termination is in connection with a "qualifying corporate transaction" such as an asset sale or stock sale. See Treasury Regulation § 1.401(k)-3(e)(4). My point is--get your directive from client/attorneys, not the other way around.

Your options greatly depend on the terms of the stock purchase agreement and the purchaser's retirement plan (assuming it has a plan). In the majority (but not all) of the transactions I have been involved with, the purchaser agrees to grant predecessor (i.e. pre-aquisition) service under its retirement plan. So, I would check the terms of the stock purchase agreement. I would also check the terms of the purchaser's retirement plan (adoption agreement) under "Eligibility" to ensure that there has not been an election to exclude predecessor service for employees acquired in a corporate transaction. The company L participants will have a distributable event on account of the stock sale. This needs to be taken into account as well. Hope this helps as a starting point.

I'm not clear on your question--are you asking whether the part time employees who have not met the 1000 hours to meet the one year of service requirement may be excluded from 410(b) testing? Yes, they may be excluded no matter how you measure a year of service (elpased time or hours of service).

The eligibility service requirement for full and part time employees is the same--one year of service. One year of service, however, is calculated using different methods that are both allowed under the DOL Regulations. Nevertheless, I do not view this as different eligibility criteria for full time versus part time. 410(b) is always "invoked" even if full and part time employees have the same eligibility criteria.

Depending on the termination process, the excess assets can fluctuate during the wind-up period. So, before accelerating the termination date solely because of overfunding concerns, I'd want the actuary to quantify how much additional funding surplus is actually expected to arise between July and December 2026.

This would not be a brother-sister controlled group. The lowest identical ownership of H/W between the two companies is 45%.

Can they? Sure, it always possible. Will they (in particular the IRS)? My opinion (and my opinion only) is no: Given that the Treasury Regulations do not directly address the PE issue and that PE firms have historically taken the reasonable stance that they are not a "trade or business" for Section 414 purposes without any pushback from the IRS (that I am aware of), I think the IRS would currently be reluctant to take on this issue. The IRS is quite aware of which law firms represent PE and also understands that taking such a stance could create major headaches for the PE sector. Given the stakes, PE would fight very hard on this issue. So, from the IRS' point of view (in my opinion) it would not be a winning strategy without clear Treasury Regulations.

Peter's point is correct. The 100% of workforce is not really the issue that the IRS would focus on. Rather, the issue is whether this individual truly qualifies as "management or highly compensated employee." Keep in mind, however, that a 457(b) plan sponsored by a tax-exempt entity is not required to be a top-hat plan, whereas the 457(f) plan does.

I second and third what has been stated above. At least to me, this seems like a prohibited mid-year amendment under IRS Notice 2016-16. Notice is not your issue. Your issue is that you cannot make this amendment mid-year.

Coleboy1: There is much to unpack from your fact pattern. I am assuming that the 300 service providers were common law employees of the client and also participating in the retirement plan. I further assume that the new leasing arrangement is a PEO type arrangement where the leasing agency becoming the employer of record (handling payroll, etc...) while the client still retains discretion over how and when these 300 individuals perform their services. I also assume the 300 individuals will not be covered under its current retirement plan. To answer your question: The "moving" of the 300 participants deserves a very hard look to determine if a partial plan termination has been triggered. As you know, the determination of a partial plan termination is based on facts and circumstances. Case law, of course, is one very important factor and so is the prevailing view of the IRS. I assume this issue matters because the plan has a vesting schedule. But your partial plan termination issue is just the tip of the iceberg. If these 300 individuals are not covered under the client's plan, will they be covered under the PEO's plan? Are the terms of the PEO plan similar to the client's plan? Remember that no matter what you may label these 300 service providers, they would likely still be "common law employees" of the client and still may lay claim to be covered under the client's plan (as opposed to the PEO plan). The plan's exclusion is for "leased employees", which is a very specific definition under 414(n). Look at that definition. Would these 300 be excluded under that definition right now? And assuming they can be excluded for 410(a) purposes, they would still be included for 410(b) coverage purposes unless there was an exclusion there (e.g., age 21/year of service, union, etc...)

PensionPro: I don't think Rev. Proc. 2021-30 ("EPCRS") provides specific guidance on this situation, but one of the guiding principles of EPCRS is to place the participant and the plan(s) in the place they would have been absent the failure. Using that logic, the participant's deferrals (plus earnings/losses) for the period he/she was in the A plan (but should have been in the B plan) are transferred over to the B plan. In conjunction with the transfer of assets, I would then draft an SCP memorandum to file describing the failure, and the above correction. I would not propose the various retroactive amendments you are suggesting (although they are technically correct) simply because in my experience providing legal advice to TPAs and dealing with the IRS, they would very likely view this as a "no harm, no foul" situation. Of course, this assumes that the plan documents are truly the "same" (i.e., identical) and that other than this operational failure, have been operated accordingly.