Asset purchase - distribution of plan assets

[PMC]

May not be as complicated as I am making it but - Car dealerships A and B each have a 401(k). Car dealership A purchased B in 2002, inventory and employees. B no longer exists. Haven't seen any agreements, amendments, resolutions and don't know whether A actually assumed sponsorship of B plan.

If there no longer is a dealership B, and A purchased the assets of B, is B's plan an asset and therefore A automatically assumed the sponsorship of B's plan?

Can B's plan be terminated and assets (including deferrals) distributed without any successor plan issues?

Could assets be distributed as a severance from employment, or would it be too late if A is now the sponsor of B's plan? Should B's plan adopt the

EGTRRA provision allowing the severance from employment distribution?

Trying to stay away from merging the two plans because there may be a testing issue in the B plan.

[Guest BillClinton]

Maybe an easy way to deal with this would be to terminate dealership B's 401k according to the plan's provisions, and have those employees rollover their accounts into dealership A's 401k plan.

[david rigby]

No expert I, but it seems the first question to ask is not whether Dealership B continues to exist, but does company B continue to exist after the sale? If it does not, then it seems likely that either A assumed sponsorship of the plan, or company B dissolved after the sale, which would probably terminate plan B.

But...

no matter the answer to that question, the sale/purchase documents should answer the question of who is the sponsor of plan B immediately following the transaction. If not, the attorneys who wrote such documents should get back to work.

[mbozek]

If A only bought selected assets of B, it did not agree to acquire B's plan which remains with B as plan sponsor (This is M & A 101 for asset purchases because the buyer does not purchase liabilities of the seller and qualified plans are looked upon as liabilities of the seller because of potential ERISA claims, qualification issues etc. and because the account balances of those emplyees who are not transferred to B must remain in A's plan). Qualified plan assets of transferred employees are transferred from sellers plan to buyers plan as a rollover or trustee to trustee transfer only if purchase agreement expressly permits a transfer. It is B's obligation to either continue or terminate B's 401(k) plan. If B has been liquidated then its 401(k) plan is an orphan plan without a sponsor. Biq question is who do B plan participants file request with to recieve benefits under B's plan if B has been liquidated? Presumably B plan participants can elect to receive a distribution from B's plan because they have severed from service of B and elect to rollover amounts to A's Plan.