Transfer of Loans

[Guest mcw]

I have a client that owned 100% of a sub. The parent and sub employees were both under the parent's 401(k) plan. The parent sold 50% of the sub to an unrelated 3rd party. The sub then adopted the parent's plan as a multi-employer plan. The sub employees have a lot of loans in the plan.

Question 1 - Is there a distribution problem with the loans when the sub adopts the parent's mulit-employer plan?

The sub now wants to adopt the third party's multi-employer plan and get out of the parent's plan. Question 2 - When the sub adopts the third party's plan and the assets and loans are transferred to the third party's plan is there a distribution problem? If this is a distribution, it is my understanding that loans cannot be rolled over.

[Mike Preston]

It is not referred to as a "multi-employer" plan. It is a "multiple-employer" plan. Huge difference.

Once the new company "signs on" to the existing plan, it becomes a multiple employer plan and creates a situation where there is effectively no severance with respect to employees of the sub. Plan just continues to rock. There are no distributions. There are no problems with the loans.

How are the monies moving from the parent's plan to the new plan? Spinoff? No problem. Loans can travel nicely.

[Kirk Maldonado]

If the plan becomes a multiple employer plan, you can no longer use a master or prototype plan. (Or at least that was true a few years ago.)

[Guest mcw]

Thanks for your help. I understand the difference between multi and multiple employer plans. I just used the wrong term in my post.

They are using a volume submitter for the multiple employer plan.