Distributions on Plan Termination

[Guest clh]

Code Section 401(k)(10) permits distributions from a 401(k) plan on plan termination without the establishment or maintance of another defined contribution plan. Pre-EGTRRA regulations stated that the employer could not establish or maintain another plan within 12 months after the plan's termination. The "employer" is determined as of the date of plan termination. Corporation C is a member of the ABC controlled group of corporations. C maintains a 401(k) plan for its employees. The plan is terminated immediately prior to the sale of C's stock by its parent corporation to the DEF controlled group. C's employees immediately become eligible to participate in a plan sponsored by the DEF group. Can distributions be made from the terminated C corporation plan on the basis that the "employer" maintaining the plan after the sale of the stock is not the same employer that maintained the terminated plan? Prior to the sale of the stock, the employer was the ABC controlled group. After the sale, the employer is the DEF controlled group.

[QDROphile]

The IRS apparently agrees with this theory. IRS speakers have said so with the usual disclaimers and we have received determination letters on plan terminations that made it clear the the participants of the terminating ABC plan were participating in the DEF plan by virtue of continued employment by C.

I am unaware of any authority that you can rely on.

[Kirk Maldonado]

Between the language of the regulation and the preamble, I thought this point was absolutely clear.