I have a client whose business is being (or has been) taken over as an asset purchase.

[Guest jhilliard]

My question is: Does this constitute a distributable event? Can the employees of this company take a distribution rather than rollover to acquiring company?

Any insight would be appreciated

Thanks

[Belgarath]

This gets a little tricky, I think. Is the purchasing company maintaining the existing plan? I believe that GCM 39824 says that if there has been an ASSET purchase, as opposed to a stock purchase, that there is a "severance from employment" with the prior seller, unless the purchasing employer either continues the old plan as a new plan sponsor, or if the assets are directly transferred in a trustee-to-trustee transfer (rather than an elective transfer or rollover.) But I'm going from memory without rereading it.

The document probably defines a "distribution event" or "distributable event" or something along those lines, but may not be specific enough when trying to distinguish between a stock purchase and asset sale.

[E as in ERISA]

If I need good M&A info, I google "Ferenczy" with some words like 401(k) and merger. She has a number of good publications on the issues. See http://www.pgfm.com/content/firmpubs/Ferenczy%209-4.pdf

The general rule is now that distributions can be made to the employees who have a severance from employment with the seller and go to work for the buyer. But you still have to look at each transaction.

I always worry about what an "asset sale" is nowadays. Today that is often accomplished by making the business into an LLC that is a "disregarded entity" for TAX purposes and selling the LLC. The corporate tax people will call that an "asset sale." However, what actually occurs is a sale of the interest in the LLC. If the LLC is the sponsor of the plan, then I'm concerned that from a LEGAL standpoint the plan will follow the LLC to the buyer. So it would actually be more like a stock sale. You would want to make sure that the sponsorship is with a different entity or that the plan will be terminated prior to the transaction.

[Guest jhilliard]

The purchasing company is not maintaining the existing plan, and there is not a direct asset transfer.

It sounds like this would be treated as a distributable event.

[Guest hyper]

Why not just terminate the plan and be sure it is a distributable event ? At a minimum, this sounds like it would fit the bill of a partial termination and all effected EE get vested anyhow ? Is there issues with fully vesting EE's ?

In cases like this (I assume no EE's left at seller, all either terminated or moved to buyer), I have always had a concern that even tho this is an "asset deal", the IRS/DOL/Courts may look to the buyer as the plan sponsor because the only EE's left to administer the plan now work for buyer. This typically means all the plan administraive functions (5500's, distribuion of forms, 5310 filing, etc) are actually being performed by the buyers employees (former seller EE's).

In a perfect world, I would suggest terminating the plan prior to the deal and assigning one seller EE, thru corp. resolution, to wrap up administrative functions.