Does the same desk rule apply if the new and old employers are not rel

[John A]

If Company A hires all of the employees of Company B (all of whom terminated employment with Company b), but no sale or merger is involved, and the companies are not related (not a controlled group, affiliated service group, etc.), can the "same desk rule" apply? The employees continue to perform their same job duties, but now for a new, unrelated company and without any sale or merger.

[Guest Sonia Kapoor]

Under IRC 401(k)(2)(B)(i)(I),(II),(III) and (IV) amounts contributed by the employer pursuant to an employee's election cannot be distributed to the participants or beneficiaries earlier than separation of service, death or disability, termination of the plan or disposition of assets as defined under IR Code section 409(d(2).

Revenue Ruling 79-33, 1979 C.B. 187 provides that an employee will be considered separated from service within the meaning of section 402(e)(4)(A) of the Code only upon the employee's death, retirement, resignation, or discharge, and not when the employee continues on the same job for a different employer as a result of the liquidation, merger, or consolidation, etc. of the former employer.

Revenue Ruling 80-129, 1980 extended this rationale to situations where an employee of a partnership or corporation, the business of which is terminated, continues on the same job for a successor employer formed to continue the business.

In your case, it appears that the rule shall apply the absence of sale notwithstanding.

[PMC]

No corporate transaction between A and B. A and B totally unrelated. B still exists. All of their employees are now employed by A and it just so happens they are performing the same job functions for A as they did for B. Why couldn't this be viewed as a separation from service from B?

Benefits Consulting firms A and B are totally unrelated. Consultants for B terminate employment from B and all go to work for A doing the same type of benefits consulting. Wouldn't they have separated service from B and entitled to a distribution from B's 401(k)?

[MWeddell]

Unless there's an outsourcing situation here, or a termination of an outsourcing arrangement, it sounds to me like there are separations from service.