Distribution Event?

[Randy Watson]

Assume that a 401(k) plan sponsored by Company A is also adopted by Company B. Is there anyway that Company B's termination of participation in the plan would constitute a distribution event that would enable Company B's employees to take a distribution from the plan? Unless there is some guidance out there that says this is equivalent to a termination of employment or a termination of the plan (with respect to Company B employees) I don't see any basis for a distribution. However, there is some language in the plan that appears to suggest that this is a distribution event.

[rcline46]

Randy, we need more information. Is company B in a controlled group or affiliated service group with company A? If not then this is a multiple employer plan.

Did company B establish another plan? What was the reason company B left the plan?

[Randy Watson]

Company A and B are related, but not to the extent that they constitute a controlled group of corporations. They also fall outside the realm of affiliated service groups.

Company B did not establish another plan, however, B is in a controlled group and there is a company within B's controlled group that does maintain a 401(k). Company B employees will participate in that plan. Are you thinking that 401(k)(10) would come into play based on B's termination of participation in A's plan? If so, that's okay because we are not hanging our hat on being able to force out distributions from A's plan...we just want the participants to be able to take a distribution from Company A's plan if they like.

[E as in ERISA]

In some cases where you have two companies partially related (but not under common control), you could spin off B's part of the plan and then terminate it and distribute. But it sounds like would have successor plan issues in this case. You could spin and merge.

[rcline46]

Randy, you can see how complicated these things get very quickly. If B was already in that other controlled group when it signed on to A's plan there were testing issues which were probably not addressed. This also means that A's plan had to be set up as a multiple employer plan, which it may not have been creating some very nasty document issues and maybe testing issues since A and B had to have separate tests.

Or maybe B just became part of the controlled group and that is why it 'withdrew' from A's plan. Details will kill you!

WIthout knowing all of the details I would check the documents, amend if necessary, and do a trustee to trustee transfer of all of B's participants to the other plan. I shudder to think of the testing nightmare that was just created. 401(k)(10) is definitely in plan here for B and they just cannot take distributions without disqualifying A's plan and the other plan.

Hie thee to the ERISA attorney!

[Randy Watson]

Thank you.