Transferring All Benefit Plans to Wholly-Owned Sub

[Christine Roberts]

C-corp that has sole shareholder plans, for tax reasons, to create a wholly owned subsidiary and transfer all employees, assets, and benefit plan sponsorship to the subsidiary.

Subsidiary may be purchased by third party some time in the future.

Other than amending plans/insurance policies to name subsidiary as adopting employer, are there any other steps to take, or potential pitfalls?

[KIP KRAUS]

Christine

Not sure exactly what you are saying. Is the C-Corp the parent company of the wholly owned subsidiary? If so, why can’t they sponsor the plans and have the subsidiary adopt them by corporate resolution?

Maybe I just don't understand the tax reasons for what they are doing.

[GBurns]

Is there some reason why the C-Corp parent cannot sponsor the plan for use by the subsidiary?

Plan sponsorship after spin-off or sale is not a relevant issue at this time.

Even if the liabilities and expenses are transferred to the sub, the net tax effect should be the same as before?

What is the tax reasoning?

[mbozek]

C: There are many issues to consider. First are the plans db or dc plans. DB plans subject to the PBGC rules have issues regarding transfers of liabilities. Second are there different provisions for the shareholder plans which may have to be accomodated in the sucessor plan, e.g. benefit options? Third there may be a question of who can deduct contributions and which sponsor would get a greater tax benefit if a consolidated return is not filed for all sponsors. This issue should be reviewed by an acountant. Fourth the Controlled Group rules would require crediting of service for vesting, etc. Fifth are these employers subject to the affiliated service group rules? It would be advisable for benefit counsel to review all of the plan documents to determine what issues need to be resolved to effectuate a seamless transfer of sponsorship.