New Employer for Successor Plan Rule

[Guest philc]

Company A is owned by 2 individuals and maintains a 401(k). They intend to change their business as of 12-31-02, terminate all their employees, terminate the 401(k), make distributions. Effective 1-1-03 they (same 2 owners although the ownership %s change) intend to reestablish themselves as Company B, hire those employees back and establish a new 401(k). Reason given is they want to make a total break as Company A.

Rationale for doing this vs. Company B assuming the plan of A notwithstanding, do you think Company B would be considered a separate employer for purposes of establishing a new 401(k) and avoiding the successor plan rule?

[E as in ERISA]

Is Company A going to be in business up until December 31, 2002? If so, it's likely that under state law, the company will not be dissolved on December 31 -- there are timelines for notifying creditors, etc. From a practical standpoint, it's likely both companies will be in existence for some period during 2003. And, depending on the ownership percentages, probably under common control during 2003?

[alanm]

I don't think the new entity is a new employer and they would be caught by the sucessor plan rule. In Treas REg 1.401k(1)(d)(3), reorganizations whereby the same owners end up with the new entity do not constitute a new employer.