Eligibility for employees transferred to company due to asset purchase

[Guest Sara H]

One of my clients has recently purchased assets of another company. I can't find anywhere in the document when these employees can begin to participate in my client's plan. Do they enter immediately or are they subject to this plan's eligibility requirements? Any help would be appreciated!

[Medusa]

The plan should specify whether any predecessor service is granted. If it isn't specifically granted, the employees will need to satisfy eligiblity from the date of the acquisition. It is relatively unusual (but legal) for this approach to be taken.

[RCK]

I'd say that you need to start with the purchase agreement. You will also want to check any communications that went out to acquired company.

Our general practice is that for an asset purchase, we don't count pre-acquisition service and for a stock purchase we do. I know that we have made an exception and counted service for a asset purchase, but I don't think that we have ever not counted service for a stock deal.

So, I'd check the purchase agreement, and then make sure that your plan lines up with that. You may have to amend to specifically include service with XYZ company.

RCK

[Guest carsca]

I'm not sure that Medusa has it right.

Assuming your client agreed to maintain a plan of the predecessor employer, code section 414(a)(1) should require your client to credit predecessor service.

[RCK]

I think that the client has the plan, and the predecessor did not have a plan. Sara H is trying to figure out how much of the predecessor service to count toward eligibility and/or vesting under the survivor's plan.

[Medusa]

I read it the same as RCK.