spin off

[k man]

A few shareholders and associates in Law firm A decide to leave the firm and form Law Firm B. They would like their new entity to sponsor a plan with the identical provisions. is this a spin-off as defined by the 414 regs and are the account balances just transferred to the new plan?

[E as in ERISA]

It depends on how the transactions are documented. Plan A could be amended to provide that Law Firm B's portion of the plan is "spun off" and that Law Firm B will assume sponsorship of that portion of the plan. Or Law Firm B could adopt an entirely new plan with identical provisions and the employees could roll their money into the new plan.

[2muchstress]

I agree with Katherine and have seen it done both ways. If the employees of Law Firm A who are going to leave and go to Law Firm B want to receive distributions, then it might be best to start a new plan with the exact same provisions.

However, if a new plan is started, then this is a perfect time to look at different provisions. Maybe the only reason firm B wants the same provisions is because that is all they know. There may be better ways to allocate employer contributions, or other provisions that can benefit the employers or employees better.

[k man]

so on a corporate level it does not matter how the transaction is structured, so long as the trustees consent to the "spin off"? what makes this different than an ordinary separation from service situation?