Distribute or Transfer

[Guest philc]

Company A has a 401(k) plan. Roughly 1/2 of the participants are being spun-off to form a new Company B, that also wants to establish a 401(k) plan.

Since these participants have separated from service of Company A, is Company A's plan "required" to permit them to take a distribution? Or can the trustees of each plan affect a plan to plan transfer, without giving these participants the option of receiving a distribution?

And with the significant drop in the number of participants in Company A's plan, could it be considered a partial plan termination, even though the "separation" may be voluntary and Company B is establishing its own plan that would accept the transfer of account balances?