When does an employer "maintain" the plan?

[Übernerd]

This one's sort of ugly. The short version is, "When does an employer maintain a plan" for purposes of the § 1.410(b)-9 definition of "employer" (which applies under the regs at issue here). Here's the long version.

Employer is in the process of winding down its operations. It sponsors two large DC plans (401(k) and 403(b)). Employer also has four subsidiaries that will continue to operate separately after it winds down. It wants to spin off to the subs the portions of the plans covering active employees of those subs. In doing so, Employer wants to give the subs the option of taking directly-spun pieces of the current plan or asset-transfers into their own new plans. Specifically, it wants participants in the spun-off subs to have the option of taking cash (relying on the plan termination as a distributable event) or rolling their balances into the new plan. In the latter case, Employer is concerned about creating successor plan issues for the subs. That is, if the subs decide to go with new plans, Employer doesn't want those plans to end up being disqualified as successor plans.

According to the 401(k) regs, an "employer" can't use plan termination as a distributable event if it maintains an "alternative DC plan" (the new term for successor plan). "Alternative DC plan" means any DC plan maintained by the "employer." "Employer" means the employer maintaining the plan, and any other employer within its controlled group, as of the date the plan is terminated. [This is all in, or cited in, § 1.401(k)-1(d)(4).]

A simple reading of this rule is that, as long as the subs have been spun out of the sponsor's controlled group before the original plan's termination date, they aren't "the employer" and they don't have any successor plan issues. Unfortunately, I think this impermissibly conflates "employer sponsoring the plan" with "employer maintaining the plan." If the subs still maintain the plan on the termination date, they're still the "employer" on that date, and any new plan they gin up is an impermissible successor plan. If having active employees (who are, e.g., still earning vesting service on account balances contributed by the subs to the original plan) constitutes "maintaining" for this purpose, which I'm afraid it might, then the controlled group question is irrelevant, and the subs remain "employers" on the termination date.

So, back to the question, what does it mean to "maintain" a plan?

Thanks for any help!

LJ

[E as in ERISA]

What does the corporate transaction look like? Subs spun off -- but still owned by the same parties that originally owned the parent? Or sold to unrelated parties?

And did you read a little further? 1.401(k))-1(d)(5)(iv) on transferor plans.

[Übernerd]

What does the corporate transaction look like? Subs spun off -- but still owned by the same parties that originally owned the parent? Or sold to unrelated parties?

The transaction could very well end up being influenced by these DC plan questions. Employer is a not-for-profit stump of a much larger entity, most of which was sold. It exists solely to wind up the affairs of its predecessor and is on its way out of existence. The four subs will simply become independent entities; i.e., they won't be sold. (There are no "owners," as such--the controlled group exists solely by virtue of Employer's right to appoint directors of the subs.)

And did you read a little further? 1.401(k))-1(d)(5)(iv) on transferor plans.

Yes, but it doesn't help with the "maintain" question. The idea is to give the current active employees of Employer's subs the option to take a cash distribution or roll over their balance to new plans of the subs. To do that, they need the original plan to terminate (so that 1.401(k)-1(d)(1)(iii) applies to permit distribution). So the question is whether the subs, once they're out of the controlled group, nonetheless continue to maintain the plan because they have active employees with account balances under the plan (e.g., still earning vesting credit under money contributed to the plan when they were still subs of Employer).