Asset Acquisition / Leased Service / Subsequent Hire

[Guest Chaffee]

Employee X worked for a division of Company A since 1995. In April 2003, Company B acquired the ASSETS of the division.

From April 2003 to December 2003, Company B "leased" the employees of the division from Company A. Company B reimbursed Company A for cost of employees that stayed at the division during transition (and worked on a substantially full-time basis for Company B).

In December 2003, Company B hired Employee X.

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Company B Plan Document indicates that predecessor service of an Adopting Employer is reconized for vesting and eligibility. However, I don't think this would apply, since there is no "employer." The Plan Doc seems to address Stock Acquisitions, but not asset acquisitions.

Plan Sponsor took a conservative approach, and credited service from Employee X's 1995 hire date with Company A. Is this allowed if there is no amendment addressing this particular situation? The Plan Doc seems to address Stock Acquisitions, but not asset acquisitions. May the Company retroactively amend the plan to credit prior service for employees from this asset purchase? Would the anse change

A) Upon Employee X's hire by Company B, what service is required to be recognized? (i.e. at a minimum, is leased service from April 2003 required)?

B) Was Company allowed to credit service back to 1995 without an amendment addressing this particular purchase?

C) Could Company B now retroactively amend plan to credit service for employees from asset purchase?

D) Would the answer change is the Employee was a potential HCE?

[mbozek]

Before asking these questions what are the powers of the Plan administrator to determine the amount of service to be credited to a participant under the plan? Most plans give broad powers to the PA to credit service to a participant. There are cases where employers have been required to credit benefits for service performed as a leased employee.

[Guest Chaffee]

mbozek,

Thanks for the tip. The plan does have the general language to interpret provisions and rights of eligibility as long as they are applied in a "uniform and non-discriminatory fashion."

Based on this, I would think that the Administrator could grant prior service to employees "acquired" in connection with an asset purchase.

My concern was if the only people hired from an asset purchase were some higher paid execs (all HCEs), then there would be some issues with crediting them with prior service, especially if the document does not address it. Without a written procedure, the risk of arbitrary crediting seems higher.

As for your second point, I didn't think there was an option to not credit service to a hired employee who previously worked on a substantially full-time basis through a leasing organization (regardless of whether the "leased employee" year requirement was met) - Section 411(n)(4). Am I missing something?

[mbozek]

ERISA 202(a)(4) permits exclusion of persons who are not members of the eligible group from particpantion in the plan.