Is it a plan termination or a takeover plan?

[Guest Michael Anderson]

We have a company that recently bought out another. They have changed the old companies name, EIN and 401(k) Plan name. The nature of the job has not changed at all, basically it just changed hands. Same desk rule, right? But can you still apply this rule? We are going to takeover the 401(k) and would like some confirmation on whether it should be considered a takeover or a full Plan termination. Thanks for your help!

[Dave Baker]

It doesn't sound like a termination to me; usually that takes some kind of formal action by the board of directors of the plan sponsor. You could check the terms of the plan document to see whether there is any guidance as to what it takes in order for the plan to be terminated; maybe it calls for full vesting and prompt distribution of assets upon the occurrence of some specific circumstances.

In effect the new employer has signed on to the plan as a participating employer, which seems to prevent the employees from having had their employment terminated (which might require full vesting, as where a large chunk of the workforce is laid off).

[david rigby]

I agree. I see no action that caused termination of employment or termination of the plan. In fact, on the day of acquisition, the only thing different was that the plan sponsor became a subsidiary of another company. It appears that sponsorship of the plan did not change on that day.

[Guest ebpcpa]

I further agree--no termination procedures are required and a merger or consolidation of two plan sponsors does not always result in a "merger" of plans. Two plans are merged only if after the merger all plan assets are available to pay benefits to employees and beneficiaries covered by the merged plan. You may have some coverage and nondiscrimination concerns under this new set up, though.

[Guest Michael Anderson]

Hey thanks for the responses, after looking into it further and hearing your opinions, we agree it is a takeover - thanks!