Terminated plan distributions

[pbarrett]

We have a 401(k) plan that is being sold 4/30/05. It is is stock purchase. The new owner is purchasing 100% of the stock. On April 20, 2005 the plan will be terminated. On April 30th, the two trustees will be fired. (One bank is buying another and terminating the President and CEO.)

Questions: 1.) There are about 5 participants who have been terminated for years but will not elect to take their distributions. Their balances are all well over $10,000. Any way to force them out without an election? 2.) I assume there has to be a sponsor until the plan zeros out. Would one of the current Trustees need to sign a corp resolution appointing the new bank as sponsor or can it be assumed the new bank will act??

I appreciate any help on this.

Pat

PS: The buying bank has a 401(k) plan and they will allow continuing employees to roll their balances in.

[stevena]

my take: although you said the plan is being sold, it sounds like this is an asset purchase. the new co. did not buy the plan when they bought the assets.

(I cant imagine a company being willing to do a corporate resolution taking over a plan-liability)

follow the rules for terminating plans as far as those "old" participants go and find them auto rollovers.

the other participants who are "continuing" are rolling their assets into their "new" employers plan.

[mbozek]

Why go though the trouble/cost of terminating the seller's 401k plan instead of merging the plan with the buyers 401k plan and then charging the terminated participants an admin fee for the cost maintaining their accounts on a cost neutral basis if the funds are not withdrawn? No termination expense, no 5500, etc. The forfeitures in the sellers plan can be allocated among all the participants in the buyers plan or used to reduce future contributions.

[david rigby]

mbozek makes a valid point, noted many times on these Boards. However, there may be several valid reasons for terminating rather than merging. Among the most important is that the buyer may want to ensure that his (current) plan is not "tainted" by any potential mistakes/wrong-doing in the other plan, including with respect to plan design, administration, trustee, fiduciary issues, etc.

However, back to the original post. The plan is not being sold, the plan sponsor is. If there is a 100% stock purchase, then the plan "goes with it". Even if terminated prior to the sale, unless the buy/sell agreement makes clear that a surviving organization will continue to exist and will have all responsibility for the termination. Let's be clear: is that what is happening?

If terminating, then "follow the rules" is good advice. If a plan is terminating, then you don't have to worry about "forcing out" the former employees' accounts: they have to be distributed, just like all other participants. The plan provisions will already say this.

Since the buyer is terminating the employment of (at least) one trustee, the buyer should be prepared to install a substitute trustee immediately, so that the "chain of command" is clear throughout the termination process.

[stevena]

Ive had a ton of these buyouts, and have never seen a purchase agreement which did not specifically state that plan assets were not part of the asset sale. the lawyers are usually right on top of that. the purchasing companies would be nuts to take over a plan that they know nothing about.

just thinking about what i see sometimes when we take over plans....and tens of thousands of dollars later....why would anyone want to take over a plan, what is the benefit?

[stevena]

you know what, my bad. i just re-read and saw that this is a stock sale. sorry.

so my answer...totally not right.

but, I still would never expect that the new owner would do anything but terminate that plan. however, its theirs to terminate...

sorry for going down the wrong path there. i will read more carefully.