Spin-offs

[Belgarath]

This is not something we generally deal with, due to handling only small plans. However, we recently encountered the following:

Corporation A maintains a profit sharing plan. Corporation A has all of its assets (not stock) purchased by corporation B. The terms of the deal are such that all of the employees of corporation A, except for 2, will be employed by corporation B. They intend to do a "partial merger" of the plans - corporation B's PS plan will accept the transfer of all assets and liabilities of the corporation A plan, with respect to those employees of corporation A who will now be employees of corporation B. After this "partial merger" corporation A will terminate the corporation A plan.

First, it appears that a 5310-A is not required in this situation, where 100% of the account balances in a DC plan for the affected employees are transferred. Agree/disagree?

Second, are there any tips on specific issues to watch/avoid? This "partial merger" appears to me to actually be a "spin-off." Is the process really as simple as doing a valuation of the account balances, and transferring those balances directly to corporation B's plan, then processing a normal termination of A's plan? Other thoughts? Appreciate any input.

[QDROphile]

You might need a Form 5310-A if you have any suspense accounts, such as an account for unallocated forfeitures or a 415 suspense account. The insructions on the form are not perfectly clear and opinions vary about what is a suspense account that would trigger the requirement. It pays to be conservative and file when in doubt.

Styles differ, but I like to have a document for the spin-off and merger. The document is a plan document for both plans (spin-off for A and merger for B) and it would state the nature of the spin-off (partial, and identify the part that is transferred), effective date and any other special aspects, such as grandfathering, special eligibility or vesting provisions, transition of investments.

Watch for investment blackout, if applicable.