Distribution upon Disposition of Assets - mandatory or optional?

[Guest LMalone]

I know this may be a non-issue next year.

Corporation S (seller) sponsors a 401(k) plan. Division D participates in the plan. Corporation S sells all assets of Division D to an unrelated Corporation B (buyer). Corporation B also maintains a 401(k) plan.

Under 401(k)(10)(A)(ii), a distribution may be made from Seller's plan to participants in Division D.

QUESTION: Does Seller still have the option to transfer the accounts to Buyer's plan in a trust-to-trust transfer? Or since 401(k)(10) applies, may the Division D participants demand a distribution? What gives the Seller the right to transfer and not distribute?

Even in 2002, would the Seller have the right to transfer and not distribute?

If it makes any difference, the asset purchase agreement included language that no distributions would be made, but the accounts would be transferred to the buyer's plan.

Thanks for any insight.:confused:

[lkpittman]

IF your example meets the requirements of 401(k)(10)(A) (I'm not going to address that one!), in order to transfer rather than allow distribution to participants, the acquisition/transaction documentation should simply specify that the assets are to be transferred pursuant to 414(l)and not distributed. I think then you would have a 414(l) transfer of assets/liabilities and the employees would not be entitled to a distribution. Problem is, we find that many corp attys avoid making decisions relating to the plans in the transactional documents (and they don't fully consult with benefit attys about the ramifications!). A separate merger/transfer agreement could be executed for the plans. I think that the same would hold true when "same desk rule" goes away in 2002.